mth-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-9977

Meritage Homes Corporation

(Exact Name of Registrant as Specified in its Charter)


Maryland						86-0611231
(State or Other Jurisdiction of Incorporation or Organization)						(IRS Employer Identification No.)

8800 E. Raintree Drive, Suite 300, Scottsdale, Arizona 85260

(Address of Principal Executive Offices, including Zip Code)

(480) 515-8100

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $.01 par value	MTH	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

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Accelerated Filer

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Non-accelerated filer

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Smaller reporting company

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Emerging growth company

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If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act.

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

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The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2021, was $3.5 billion based on the closing sales price per share as reported by the New York Stock Exchange on such date.

The number of shares outstanding of the registrant’s common stock on February 9, 2022 was 36,940,855.

DOCUMENTS INCORPORATED BY REFERENCE

Portions from the registrant’s Proxy Statement relating to the 2022 Annual Meeting of Stockholders have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.

MERITAGE HOMES CORPORATION

FORM 10-K

TABLE OF CONTENTS



PART I			3

Item 1. Business			3

Item 1A. Risk Factors			16

Item 1B. Unresolved Staff Comments			24

Item 2. Properties			24

Item 3. Legal Proceedings			25

Item 4. Mine Safety Disclosures			25

PART II			26

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			26

Item 6. [Reserved]			28

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28

Item 7A. Quantitative and Qualitative Disclosures About Market Risk			42

Item 8. Financial Statements and Supplementary Data			42

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			69

Item 9A. Controls and Procedures			69

Item 9B. Other Information			71

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			71

PART III			71

Item 10. Directors, Executive Officers and Corporate Governance			71

Item 11. Executive Compensation			71

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			71

Item 13. Certain Relationships and Related Transactions, and Director Independence			71

Item 14. Principal Accountant Fees and Services			71

PART IV			72

Item 15. Exhibits and Financial Statement Schedules			72

Item 16. Form 10-K Summary			75

SIGNATURES			76

PART I

Item 1. Business

The Company

Meritage Homes Corporation ("Meritage Homes") is a leading designer and builder of single-family homes. We primarily build in historically high-growth regions of the United States and offer a variety of entry-level and first move-up homes. We have homebuilding operations in three regions: West, Central and East, which are comprised of nine states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. These three regions are our principal homebuilding reporting segments. We also operate a financial services reporting segment. In this segment, we offer title and escrow, mortgage, and insurance services. Carefree Title Agency, Inc. ("Carefree Title"), our wholly-owned title company, provides title insurance and closing/settlement services to our homebuyers. Managing our own title operations allows us greater control over the entire escrow and closing cycles in addition to generating additional revenue. Meritage Homes Insurance Agency, Inc. (“Meritage Insurance”), our wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers. Our financial services operations also provide mortgage services to our homebuyers through an unconsolidated joint venture.

Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets. At December 31, 2021, we were actively selling homes in 259 communities, with base prices ranging from approximately $214,000 to $962,000. Our average sales price on both home closings and orders was approximately $398,000 and $420,000, respectively, for the year ended December 31, 2021.

Available Information; Corporate Governance

We commenced our homebuilding operations in 1985 through our predecessor company known as Monterey Homes. Meritage Homes Corporation was incorporated in the state of Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation. Since that time, we have engaged in homebuilding and related activities. Meritage Homes Corporation operates as a holding company and has no independent assets or operations. Its homebuilding construction, development and sales activities are conducted through its subsidiaries.

Information about our Company and communities is provided on our Internet website at www.meritagehomes.com. The information contained on our website is not considered part of this Annual Report on Form 10-K. Our periodic and current reports, including any amendments, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available, free of charge, on our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

Meritage Homes operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities and setting high standards for ethical conduct. Our Board of Directors has established an audit committee, executive compensation committee, nominating/governance committee, environmental, social and sustainability committee and land committee. The charters for each of these committees are available on our website, along with our Code of Ethics, Corporate Governance Principles and Practices, Conflict of Interest Policy, Securities Trading Policy and Human Rights Policy. All of our employees, officers and directors, are required to comply with our Code of Ethics and to immediately report through the appropriate channels, any known instances of non-compliance. Our committee charters, Code of Ethics, Corporate Governance Principles and Practices, Conflict of Interest Policy, Securities Trading Policy and Human Rights Policy are also available in print, free of charge, to any stockholder who requests any of them by calling us or by writing to us at our principal executive offices at the following address: Meritage Homes Corporation, 8800 East Raintree Drive, Suite 300, Scottsdale, Arizona 85260, Attention: Secretary. Our telephone number is (480) 515-8100.

Strategy

All facets of Meritage's operations are governed by our core values that define our culture and operational parameters, ensuring that our actions are aligned around our brand promise of delivering to each of our customers a LIFE. BUILT. BETTER.®

Our six core values include:

•Start With Heart

•Integrity Above All Else

•Develop to Empower

•Think Strategically

•Build Value, and

•Play to Win

These values combine our entrepreneurial spirit, cutting-edge innovation and organizational agility to strive for industry-leading results in all of our functional areas, including: land acquisition and development, finance, marketing, sales, purchasing, construction, customer care and information technology. The main tenets of these core values are:

•Value, recognize and appreciate our employees, trade partners and customers;

•Provide the highest level of customer service by bringing passion and care to every customer interaction and make a difference by giving back to the communities we serve;

•Always act with honesty, character and integrity by demonstrating openness and transparency with our internal and external customers;

•Strive to have the best team available through investing in our people and fostering an environment that embraces continual growth and learning;

•Continuously and purposefully renew, rethink and innovate with the customer in mind by supporting and encouraging new ideas and recognizing efforts that grow shareholder value;

•Lead with action, be relentless in our pursuit of excellence and never settle; and

•Commitment to building an inclusive culture by fostering diversity and equity across our organization. We believe that cultivating a diverse team allows us to collectively be more successful and better address the needs of our customers. We champion a culture where team members are treated with respect, valued for their unique perspectives and experiences, and feel a sense of belonging.

These core values are evident in the operational decisions we make at our corporate offices and in each of our divisions and communities, all of which contribute to the successes we have achieved with our customers, within the marketplace and within the homebuilding industry.

Our operational strategy focuses on building affordable, quick move-in homes that are designed to meet the growing demand for entry-level and first move-up homes. Our LiVE.NOW® communities are targeted to the entry-level price point combining nicely appointed affordable homes with a simplified and streamlined construction and sales processes aimed to create a stress-free buying experience for our customers while also allowing our trade partners and suppliers to work more efficiently and cost effectively, which allows us to pass resulting savings on to our customers. We strive to achieve a 100% speculative ("spec") home building strategy for our entry-level product by maintaining reduced SKU counts and plan libraries. In the current market of rising interest rates, supply chain disruptions and labor shortages, this strategy also provides us a competitive advantage by allowing our customers to lock their mortgage rate and avoid rate lock expirations in addition to providing predictability of volume and timing for our trade partners. Our strategy also encompasses a simplification of the home buying process for the first-time move-up segment, a demographic we have historically had a significant presence in. For our first-time move-up product, our design center called Studio M™ provides an experience that simplifies the sale and design center processes, providing an efficient and less stressful way for homebuyers to personalize their new homes through design center collections versus the traditional a-la-carte design center offerings. We believe our strategy addresses the need for well-appointed yet lower-priced homes, while allowing us to simplify and maximize the profitability of our business.

We continue to focus on innovation in every new home we build, employing industry-leading building techniques and technologies aimed at setting the standard for energy-efficient homebuilding. Accordingly, at a minimum, every new home we construct meets or exceeds ENERGY STAR® standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered today for residential construction. In 2021, we introduced a multispeed heating, ventilation and air conditioning ("HVAC") system as a standard feature in newly-constructed homes. The system is designed to operate more efficiently than traditional HVAC, allowing owners to better manage the comfort of their home while reducing their environmental impact and operating costs. These standard offerings provide our customers with homes that utilize, on average, half of the energy of a typical U.S. home of the same size. As a result of our commitment to interior air quality, we carry the U.S. Environmental Protection Agency’s ("EPA") Indoor airPLUS certification. Our commitment to incorporate these energy and healthy living standards into all of our homes has resulted in our achievement of design, purchasing and production efficiencies that have allowed us to offer these as standard features to our home buyers for nominal additional cost while providing significant additional value to our customers. In addition, all homes we build include home automation features through our M.Connected Home™ Automation Suite which includes the Honeywell Home Pro Series Hub that allows users to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors and smart door locks.

Year after year, the homes we design and build help deliver energy savings to our homeowners. As a result, we have earned various national and regional awards, including:

•2021 ENERGY STAR® Partner of the Year for Sustained Excellence for the eighth year awarded by the EPA;

•2021 Indoor airPLUS Leader Award;

•2013 - 2020 ENERGY STAR® Leadership in Housing;

•2020 Builder of the Year for Green Home Builder; and

•Various AVID Diamond, Gold and Benchmark customer service awards across multiple categories and divisions.

We believe responsible corporate governance and social responsibility is important for the long-term sustainability of the business. We take pride in being an organization driven by ethics and living by our core values and our promise to deliver a

Life.Built.Better.® We promote the long-term interests of stakeholders and customers and focus on the transparency and accountability of Meritage’s Board of Directors, executive management, our employees and trade partners. We provide information regarding these topics on our website and within publicly filed reports, including our environmental, social, and governance (“ESG”) report which is located within the Investor Relations area of our website.

Markets

We currently build and sell homes in the following markets:



Markets			Year Entered
Phoenix, AZ			1985
Dallas/Ft. Worth, TX			1987
Austin, TX			1994
Tucson, AZ			1995
Houston, TX			1997
East Bay/Central Valley, CA			1998
Sacramento, CA			1998
San Antonio, TX			2003
Inland Empire, CA			2004
Denver, CO			2004
Orlando, FL			2004
Raleigh, NC			2011
Tampa, FL			2011
Charlotte, NC			2012
Nashville, TN			2013
Atlanta, GA			2014
Greenville, SC			2014
South Florida			2016
Myrtle Beach, SC			2021

Recent Industry and Company Developments

The housing market was exceptionally strong in 2021 as the high demand that we experienced in 2020 continued, driven by favorable market factors including low mortgage interest rates, record low supply of existing homes and persistent demand, particularly from the millennial and baby boomer generations who are experiencing increased levels of household savings alongside life events that align with home ownership. We believe that the elevated demand created by these underlying economic and demographic factors will continue in the near to mid-term but will taper to a normalized pace over time. We believe our strategy for providing affordable new homes in desirable locations with inventory available for quick move-in is well positioned to address these buyer concerns.

During 2021, supply chain constraints and labor shortages caused by COVID-19 and other economic-related disruptions impacted our production and the homebuilding industry as a whole. Through long cultivated relationships with our national and local partners, we were able to navigate the limitations and expect to continue to utilize our spec-heavy, limited SKU operating model to manage the supply chain concerns that are expected to continue for at least the next several quarters.

We have been successfully executing on our strategy to address the demand for more affordable homes by acquiring and developing communities and designing homes that can be delivered at a lower cost. We are achieving our goal by simplifying our product and construction processes, switching to an all spec home sales program for our entry-level communities, which allow buyers to move in quicker, and by enhancing and making the entire home buying experience easier for our customers. We are confident in our strategy and continue to demonstrate our commitment to first-time and first move-up buyers through our land acquisitions, our Studio M™ streamlined option and upgrade offerings for our first move-up product, and our focus on delivering affordable homes through simplification of the design, development and construction processes. We also remain committed to our key financial goals such as higher home closing revenue, home closing gross margin improvement and sustainability, controlling selling, and general and administrative costs, and maintaining sufficient liquidity. Our strategic product switch and simplification initiatives have enabled us to deliver on these goals and we believe will continue to provide improved profitability while also preserving liquidity. Our current focus is on expanding our market share as we pursue long-term community count growth. Nearly our entire portfolio of active communities are targeted to first-time and first move-up buyers and who collectively represented approximately 98% of our orders and 97% of our closings in 2021.

We had an 11% increase in Average Sales Price ("ASP") on orders in 2021, translating to a 12% higher order value than in 2020 as we experienced pricing power due to the strong market demand with limited housing supply. Home closing revenue grew 14% for the year ended December 31, 2021, the result of an 8% increase in home closing volume and a 6% increase in

ASP on closings. Home closing gross margin improved by 580 basis points to our highest full-year home closing margin in Company history of 27.8% in 2021, compared to 22.0% in 2020. Our 2021 net earnings increased by 74% with a 75% increase in diluted EPS compared to prior year.

We carefully manage our liquidity and balance sheet, particularly during times of limited economic visibility. Our improved earnings are generating cash that is allowing us to reinvest in our business through acquiring and developing land, increasing the number of homes under construction as our community count grows and repurchasing our common stock. Throughout 2021, we repurchased 639,346 shares of our common stock and we ended the year with cash and cash equivalents totaling $618.3 million as compared to $745.6 million at December 31, 2020, while growing our inventory 34% to $3.7 billion. Our debt-to-capital ratio was 27.6% and our net debt-to-capital ratio was 15.1% at December 31, 2021, compared to 30.3% and 10.5%, respectively, at December 31, 2020.

Land Acquisition and Development

Our current land pipeline goal is to maintain an approximate four-to-five year supply of lots, which we believe provides an appropriate planning horizon to address regulatory matters, perform land development and manage to our business plan for future closings. We are aggressively securing new land positions to replace communities as they sell out and to expand our business and grow our footprint. During the year ended December 31, 2021, we invested approximately $2.0 billion in land acquisition and development and secured nearly 34,000 net new lots, a 25% increase as compared to approximately 27,200 new lots in 2020. We grew our lot supply with 75,049 lots under control at December 31, 2021 versus 55,502 in 2020. As of December 31, 2021 we have a 5.9 year supply of lots, based on 2021 closings. While this is above our goal to maintain four to five years supply, when based on forward projections of growth in closings our supply is closer to five years. Approximately 90% of the lots placed under control in 2021 are designated for entry-level communities. We are currently focused on adding to our current lot positions and expanding our market share in our existing markets and their surrounding submarkets while also exploring opportunities outside of our existing markets, when available, with a target of 300 actively selling communities by mid-2022. We continually evaluate our markets, monitoring and adjusting our lot supply through lot and land acquisitions to ensure we have a sufficient pipeline that is in sync with local market dynamics as well as our goals for growth in those markets. During 2021, we closed 12,801 homes, purchased approximately 30,200 lots for $1.1 billion, spent $865 million on land development, and started construction on 14,272 homes. At December 31, 2021 and 2020, respectively, 65% and 59% of our controlled lots were owned.

We are currently purchasing primarily partially-developed or undeveloped lots as the opportunity to purchase substantially finished lots in desired locations is limited. Finished lots are those on which the development has already been completed by a third party, and which are ready for immediate home construction. Undeveloped land and partially developed lots require a longer lead time to allow for development activities before our new communities are able to open for sales. Typically, undeveloped and partially developed lots will have a lower all-in cost than finished lots as we are responsible for improvements on the land, rather than paying a mark-up on improvements by a prior developer. When evaluating any land acquisition opportunity, our selection is based upon a variety of factors, including:

•financial feasibility of the proposed project, including projected profit margins, return on capital invested, and the capital payback period;

•suitability of the land for our product offering of entry-level and first move-up homes;

•management’s judgment as to the local real estate market and economic trends, and our experience in particular markets;

•existing concentration of owned and contracted lots in surrounding markets, including nearby Meritage communities;

•timeline for development, generally within a three to five-year time period from the beginning of the development process to the delivery of the last home;

•surrounding demographics based on extensive marketing studies, including surveys of both new and resale homebuyers;

•the ability to secure governmental approvals and entitlements, if required;

•results of environmental and legal due diligence;

•proximity to schools and to local traffic and employment corridors and amenities;

•entitlement and development risks and timelines; and

•availability and financial impact of seller-provided purchase options or agreements that allow us to defer lot purchases until needed for production.

When purchasing undeveloped or partially developed land, we strive to defer the closing for the land until after entitlements have been obtained to eliminate or minimize risk and so that development or construction may begin as market conditions dictate. The term “entitlements” refers to appropriate zoning, development agreements and preliminary or tentative maps or plats, depending on the jurisdiction within which the land is located. Entitlements generally give the developer the right to obtain building permits upon compliance with conditions that are ordinarily within the developer’s control. Even though entitlements are usually obtained before land is purchased, we are typically still required to secure a variety of other governmental approvals and permits prior to and during development, and the process of obtaining such approvals and permits can be lengthy. In unique circumstances, we may consider the purchase of unentitled land when we can do so in a manner consistent with our business strategy. Currently, we are generally purchasing and developing parcels that provide us with communities that range on average from 100 to 200 lots.

Once we secure undeveloped land, we generally supervise and control the development of the land through contractual agreements with subcontractors. These activities may include site planning and engineering, as well as constructing road, sewer, water, utilities, drainage, landscaping improvements, recreation amenities and other improvements and refinements. We may build homes in master-planned communities with home sites that are adjacent to or near major amenities, such as golf courses or recreation facilities.

The factors used to evaluate finished lot purchases are similar to those for land we intend to develop ourselves, although the development risks associated with the undeveloped land—financial, entitlement, environmental, legal and governmental—have largely been borne by others. Therefore, these finished lots may be more attractive to us, despite their higher price, as we can immediately bring the community to market and begin home construction as well as mitigate potential cost and time risks that can occur during the land entitlement and development process. We develop a design and marketing plan tailored to each community, which includes the determination of type, size, style and price range of homes. We may also determine the overall community design for each project we develop including street and community layout, individual lot size and layout, and common areas and amenities to be included within the community. The homes offered depend upon many factors, including the guidelines, if any, of the existing community, housing available in the area, the needs and desired housing product for a particular market, and our lot sizes, though we are increasingly able to use our standardized home design plans in most of our communities.

As a means of accessing parcels of land with minimal cash outlay, we may use rolling option contracts. Acquiring our land through option contracts, when available, allows us to leverage our balance sheet by controlling the timing and volume of lot and land purchases from third parties. These contracts provide us the right, but generally not the obligation, to buy lots at predetermined future intervals and are usually structured to approximate our projected absorption rate at the time the contract is negotiated. Lot option contracts are generally non-recourse and typically require the payment of non-refundable deposits of 5% to 20% of the total land purchase price. The use of option contracts limits the market risks associated with land ownership by allowing us to re-negotiate option terms or terminate options in the event of market downturns but also include a fee to the counterparty. In the event we elect to cancel an option contract, our losses are typically limited to the forfeiture of our option deposits and any associated capitalized pre-acquisition costs. The cost of obtaining land through such option contracts is generally higher than if we were to purchase land in bulk, although the financial leverage benefits they can provide can outweigh the financing costs associated with them. During periods of gross margin contraction, it is more difficult to achieve financial feasibility through option contracts and we will generally only contract for lots in this manner if we are still able to achieve desired margins. Land purchases are generally financed through our working capital, including corporate borrowings.

At December 31, 2021, in addition to our 48,554 owned lots, we also had 26,495 lots under committed purchase or option contracts with a total purchase price of approximately $1.0 billion secured by $82.7 million in cash deposits. We purchase and develop land primarily to support our homebuilding operations, although we may sell land and lots to other developers and homebuilders from time to time where we have excess land positions or for other strategic reasons. Information related to lots and land under option contracts is presented in Note 3 in the accompanying consolidated financial statements.

All land and lot acquisitions are reviewed by our corporate land acquisition committee, which is comprised of certain members of our executive management team and key operational leaders. All land acquisitions exceeding a specified dollar amount must also be approved by our Executive Chairman, with a secondary threshold requiring approval by our Board of Directors' Land Committee.

Investments in Unconsolidated Entities — Joint Ventures

We may enter into joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base. While purchasing land through a joint venture can be beneficial, we do not view joint ventures as critical to the success of our homebuilding operations. We currently have two active land development ventures. In addition to the land development joint ventures, we also participate in one mortgage business joint venture. The mortgage joint venture is engaged in mortgage activities and primarily provides services to our homebuyers.

In connection with our land development joint ventures, we may also provide certain types of limited guarantees to associated lenders and municipalities.

Construction Operations

We typically act as the general contractor for our projects and hire experienced subcontractors on a geographic basis to complete construction at fixed prices. We usually enter into agreements with subcontractors and materials suppliers after receiving competitive bids. In certain markets at high risk for construction or development cost increases, we enter into fixed-fee bids when it makes economic sense to do so. We also enter into longer-term and national or regional contracts with subcontractors and suppliers, where possible, to obtain more favorable terms, minimize construction costs and to control product consistency and availability. In addition to contractually requiring that our subcontractors comply with all laws and labor practices pertaining to their work, subcontractors must also adhere to our Code of Ethics, follow local building codes and permits, and meet performance, warranty and insurance requirements. Our purchasing and construction managers coordinate and monitor the activities of subcontractors and suppliers, and monitor compliance with zoning, building and safety codes. At December 31, 2021, we employed approximately 878 full-time construction and warranty employees.

We specify that quality durable materials be used in the construction of our homes and we do not maintain significant inventories of construction materials, except for work in process materials for homes under construction. When possible, we negotiate price and volume discounts and rebates with manufacturers and suppliers on behalf of our subcontractors so we can take advantage of production volume. Our raw materials consist primarily of lumber, concrete, drywall, roofing materials and similar construction materials and are frequently purchased on a national or regional level. Such materials have historically been available from multiple suppliers and therefore we do not believe there is a supplier risk concentration. However, because such materials are substantially comprised of natural resource commodities, their cost and availability is subject to national and worldwide price fluctuations and inflation, each of which could be impacted by legislation or regulation relating to energy, climate change and tariffs. We typically do not enter into any derivative contracts to hedge against weather or materials fluctuations as we do not believe they are particularly advantageous to our operations, although we do periodically lock in short and mid-term pricing with our vendors for certain key construction commodities. We experienced building material cost pressures, particularly for lumber, and production capacity issues with some of our main product suppliers, including supply chain constraints in 2021 largely associated with world-wide labor, material, and transportation shortages that were further exacerbated by the impact of COVID-19. Although we have been working with our trade partners to minimize the impact of these obstacles in 2021 by leveraging the long-term relationships we have cultivated, we expect these trends to continue to pose challenges for the foreseeable future.

We generally build and sell homes in phases within our larger projects, which we believe creates efficiencies in land development, home construction operations and cash management. We also believe it improves customer satisfaction by reducing the number of vacant lots and construction activity surrounding completed homes. Our homes are typically completed within three to five months from the start of construction, although currently longer, depending upon the geographic location and the size and complexity of the home. Construction schedules may vary depending on the size of the home, availability of labor, materials and supplies, product type, location, municipal requirements and weather. Our homes are usually designed to promote efficient use of space and materials, and to minimize construction costs and time.

Marketing and Sales

We believe that we have an established reputation for building attractive, high quality and efficient homes, which helps generate demand in our communities. Our communication and marketing plans are tailored to target and reach our different customer segments. Part of these plans involve reaching new customers through a combination of advertising and other promotional activities targeting key consumer segments through online advertising, online listings, social media, email, articles and posts to drive consumers to our website at www.meritagehomes.com. During 2021, we continued to leverage and expand our digital offerings to provide a contactless customer experience, including:

•Launched online scheduling to allow customers to schedule in-person, self-guided model home tours after hours in select locations;

•Offering virtual tours in all of our communities to realtors, customers, and prospective buyers;

•Offering extensive online tools such as 3-D tours and dynamic floor plans to mimic the live experience of walking through a model home;

•Launched our chat bot, Virtual Assistant Liaison ("VAL"), which provides customers and owners with around-the-clock information and support on our website;

•Pre-qualifying buyers for mortgages through digital solutions on our website;

•Collecting earnest money payments remotely through third-party hosted money-transfer solutions;

•Providing a warranty portal for our homeowners to submit and track warranty-related matters and a comprehensive online suite of financial services such as on-demand homeowners’ insurance quotes; and

•Offering digital signing of sales contracts and drive-through and partial or fully virtual closings in states where such services are permitted.

In addition, our local marketing efforts are focused on opening new communities with strong interest lists and driving consumer traffic to communities through digital media campaigns, virtual events for both consumers and real estate agents, grass roots marketing, and strategically placed signs in the vicinities near our communities. Our marketing strategy is aimed at differentiating Meritage Homes by highlighting our simplification throughout the buying, building and closing processes, our transparency in setting clear expectations and by building a better home leveraging industry leading energy-efficient features, cutting edge design, upgrades and finishes. All of this is part of our LIFE. BUILT. BETTER.® brand promise to our customers, which means having a home that is quieter, cleaner, healthier, smarter and safer.

We sell our homes using furnished model homes as a marketing tool to demonstrate to prospective homebuyers the advantages of the designs and features of our homes. At December 31, 2021, we owned 240 completed model homes, had 44 models under construction and leased back 33 model homes previously sold to buyers. We generally employ or contract with interior and landscape designers who enhance the appeal of our model homes, which highlight the features and options available for the homes within a project. We typically build between one and three model homes for each actively selling community, depending upon the products to be offered and the number of homes to be built in the project. We strive to implement marketing strategies that will educate our buyers on how our unique building techniques and the energy efficient and home automation features in our homes differentiate them from other homes. We integrate interactive in-home displays in order to inform our buyers about our many energy-efficient and home automation features and help them understand how and to what extent a Meritage home can help them realize savings through reduced energy bills, and experience and enjoy better health, improved comfort and peace of mind.

For our first move-up buyers, we offer home customization options through Studio M™, a completely re-imagined design center experience. Rather than the traditional à la carte design studio process, Studio M™ offers option packages which we refer to as our "Design Collections". These collections offer a pre-selected combination of flooring, cabinetry, countertops, lighting and fixtures that are all professionally designed to work together to meet each buyer's preference. Our homebuyers meet with our designers to follow a streamlined process for personalizing their homes through a selection of these packages and enhancements, while benefiting from bulk-purchase savings that we pass through from our national vendor relationships. Our concept for Studio M™ is a direct result of feedback from our homebuyers and based on our core values of innovating with the customer in mind. We took action to completely rethink how the home buying and design process should work to meet the needs of today’s buyer.

Our homes generally are sold by our commissioned sales associate employees who work from a sales office typically located in a converted garage of one of the model homes for each community. We also employ a team of online sales associates who offer assistance to potential buyers viewing our communities and products online through digital offerings such as virtual tours and 3-D tours and dynamic floor plans. At December 31, 2021, we had approximately 494 full-time sales and marketing personnel. Our goal is to ensure that our sales force has extensive knowledge of our homes, our energy efficient and innovative features, our sales strategies, mortgage options, and community dynamics, in order to fully execute our marketing message. To achieve this goal, we train our sales associates and conduct regular meetings to update them on our product, communities, sales techniques, competition in the area, financing availability, construction schedules, marketing and advertising plans, available product lines, pricing, and options offered, as well as the numerous benefits and savings our energy efficient product provides. Our sales associates are licensed real estate agents where required by law.

Third-party brokers may also sell our homes and are usually paid a sales commission based on the price of the home. Frequently, third-party brokers bring prospective buyers to our communities. We have a robust loyalty program for these brokers and we aim to regularly educate them on the benefits of owning a Meritage home and our community offerings, which we believe help enhance the impact of our marketing message. We may offer various sales incentives, including price concessions, assistance with closing costs, and landscaping or interior upgrades, to attract buyers. The use, type and amount of incentives depends largely on economic and local competitive market conditions.

Backlog

Our sales contracts require cash deposits and may be subject to certain contingencies such as the buyer’s ability to qualify for financing. Homes covered by sales contracts but which are not yet closed are considered “backlog” and are representative of potential future home closing revenue. Started homes are excluded from backlog until a sales contract is signed and are referred to as unsold speculative or “spec” inventory. A contract contingent upon the sale of a customer’s existing home or a mortgage pre-approval is not considered a sale and not included in backlog until the contingency is removed. All of our entry-level homes are started as spec homes whereas our first move-up homes can be started as a spec home or after a sales contract is signed. We may also start construction on spec homes to accelerate or facilitate the close-out of a community. Our spec inventory per active community is consistent with prior year, at 12.3 or 3,180 units as of December 31, 2021 as compared to 12.9 or 2,519 units as of December 31, 2020. At December 31, 2021, 88% of our 5,679 homes in backlog were under construction.

We do not recognize any revenue from a home sale until a finished home is delivered to the homebuyer, payment is collected and other criteria for sale and profit recognition are met. At December 31, 2021, of our total unsold homes in inventory, excluding completed model homes, 97.9% were under construction and 2.1% were completed. A portion of the unsold homes resulted from homesites that began construction with valid sales contracts that were subsequently canceled. We believe that during 2022 we will deliver to customers substantially all homes in backlog at December 31, 2021 under existing contracts, or, in the case of cancellations, replacement sales contracts.

The number of units in backlog increased 22% to 5,679 units at December 31, 2021 from 4,672 units at December 31, 2020 with a 39% increase in the value of backlog to $2.5 billion from $1.8 billion.

Customer Financing

Most of our homebuyers require financing to purchase their home. Accordingly, we refer them to mortgage lenders that offer a variety of financing options. While our homebuyers may obtain financing from any mortgage provider of their choice, we have a joint venture arrangement with an established mortgage broker that acts as a preferred mortgage broker to our buyers to help facilitate the financing process as well as generate additional revenue for us through our interest in the joint venture (see Note 5 in the accompanying consolidated financial statements for additional information on joint venture financial results). We also have referral relationships with unaffiliated preferred mortgage lenders. We may pay a portion of the closing costs to assist homebuyers who obtain financing from our preferred lenders.

Customer Relations, Quality Control and Warranty Programs

We believe that positive customer relations and an adherence to stringent quality control standards are fundamental to our continued success, and that our commitment to buyer satisfaction and quality control has significantly contributed to our reputation as a high-quality builder.

In accordance with our company-wide standards, one or more Meritage project manager or superintendent generally monitors compliance with quality control standards for each community through the building phase of our homes. These employees perform the following tasks:

•oversee home construction;

•monitor subcontractor and supplier performance;

•manage scheduling and construction completion deadlines; and

•conduct formal inspections as specific stages of construction are completed.

At the time a home is completed and delivered to a buyer, the continuing relationship is transitioned to a customer relations employee who manages our warranty and customer care efforts.

We generally provide a complete workmanship and materials warranty for the first year after the close of the home, a major mechanical warranty for two years after the close of the home and a structural warranty that typically extends up to 10 years after the close of the home. We require our subcontractors to provide evidence of insurance before beginning work and to provide a warranty to us and to indemnify us from defects in their work and the materials they provide and therefore any claims relating to workmanship and materials are generally the subcontractors’ responsibility. In certain markets and for certain attached product, we offer a Company-controlled insurance program to our subcontractors underwritten on behalf of Meritage which, if accepted, is the insurance for damage resulting from construction defects in lieu of the standard insurance we require from subcontractors. Although our subcontractors are generally required to repair and replace any product or labor defects (and for those operating in markets with our Company-controlled insurance program, pay a deductible as a condition to such coverage), we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. Accordingly, with the assistance of an actuary, we have estimated and established reserves for future structural warranty costs

based on the number of home closings and historical data trends for warranty work within our communities. Warranty reserves generally range between 0.1% to 0.5% of a home’s sale price. Those projections are subject to variability due to uncertainties regarding structural warranty claims relating to the construction of our homes, the markets in which we build, claim settlement history, and insurance and legal interpretations and developments, among other factors and we are, therefore, constantly monitoring such reserves. Historically, these reserves have been sufficient to cover net out-of-pocket warranty costs.

Competition and Market Factors

The construction and sale of homes is a highly-competitive industry. We compete for sales in each of our markets with national, regional and local developers and homebuilders, as well as existing resale homes, condominiums and rental housing. Some of our competitors have greater financial resources and may have lower costs than we do. Competition among residential homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, product type, amenities, design, innovation, quality and price. We believe that we compare favorably to other homebuilders in the markets in which we operate due to our:

•streamlined construction processes that allow us to save on materials, labor and time and pass those savings to our customers in the form of lower prices while still offering a well-appointed home;

•simplified and less stressful home buying experience through LiVE.NOW® and Studio M™;

•experience within our geographic markets which allows us to develop and offer products that provide superior design and quality in line with the needs and desires of the targeted demographic;

•ENERGY STAR® standards in all of our communities and incremental energy-efficient features that create a variety of benefits to our customers and differentiate our product from competing new and existing home inventories by providing cleaner, healthier and safer homes;

•inclusion of home automation through our M.Connected Home Automation Suite®;

•ability to recognize and adapt to changing market conditions, from both a capital and human resource perspective;

•ability to capitalize on opportunities to acquire land in desirable locations and on favorable terms;

•digital offerings in all stages of the homebuying process, as previously discussed; and

•reputation for outstanding service and quality products and our exceptional customer and warranty service.

Our product offerings and strategic locations are successfully competing with both existing homes inventory and surrounding new-home communities as evidenced by our relative orders volume and market share in most of our markets. We expect that the strengths noted above will continue to provide us with long-term competitive advantages.

We have an extensive market research department that assists us in each of our markets to better compete with other homebuilders and the inventory of re-sale homes in surrounding neighborhoods. Our strategic operations team conducts in-depth community-level reviews in each of our markets, including a detailed analysis of existing inventory, pricing, buyer demographics and the identification of each location’s key buyer metrics. This analysis and resulting analytical tools assist in decision-making regarding product designs, positioning, and pricing and underwriting standards for land purchases and land development. Additionally, our market research department supports the Company strategy by researching new market opportunities, new market entries, product library development and evolving consumer trends and preferences in housing.

Government Regulation and Environmental Matters

To the extent that we acquire undeveloped land, we prefer to close the acquisition of such land after all or most entitlements have been obtained. Construction may begin almost immediately on such entitled land upon compliance with and receipt of specified permits, approvals and other conditions, which generally are within our control. The time needed to obtain such approvals and permits affects the carrying costs of unimproved property acquired for development and construction. The continued effectiveness of permits already granted is subject to factors such as changes in government policies, rules and regulations, and their interpretation and application. Government approval processes occasionally cause timing delays but have not had a material adverse effect on our development activities, although there is no assurance that these and other restrictions will not adversely affect future operations as, among other things, sunset clauses may exist on some of our entitlements and they could lapse.

Local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions. These fees are normally established when maps or plats are recorded and building permits obtained. Governing agencies may also require concessions or may require the builder to construct certain improvements to public areas such as parks and streets. In addition, governing agencies may impose construction moratoriums and therefore we could become subject to delays or may be precluded entirely from developing communities due to building moratoriums, “no growth” or “slow growth” initiatives or building permit allocation ordinances, which could be implemented in the future. However, because most

of our land is entitled, construction moratoriums typically would not affect us in the near term unless they arise from health, safety or welfare issues, such as insufficient water, electric or sewage facilities.

In addition, there is constantly a variety of new legislation being enacted, or considered for enactment at the federal, state and local levels relating to energy and climate change. Some of this legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase the cost to construct homes, although our energy-efficiency technologies and offerings meet, and in many instances exceed, current and expected energy efficiency thresholds. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and may result in increased costs and longer approval and development timelines. Similarly, energy and environment-related initiatives affect a wide variety of companies throughout the United States and the world, and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, such initiatives could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive carbon dioxide emissions control and other environmental and energy-related regulations.

We are also subject to a variety of local, state, and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. In some markets, we are subject to environmentally-sensitive land ordinances that mandate open space areas with public elements in housing developments, and prevent development on hillsides, wetlands and other protected areas. We must also comply with open space restrictions, flood plain restrictions, desert wash area restrictions, native plant regulations, endangered species acts and view restrictions. These and similar laws and regulations may result in delays, cause substantial compliance and other costs, and prohibit or severely restrict development in certain environmentally sensitive regions or areas. In addition, our failure to comply with such restrictions could result in penalties or fines. To date, compliance with such laws and regulations has not materially affected our operations, although it may do so in the future.

We condition our obligation to acquire property on, among other things, an environmental review of the land. To date, we have not incurred any material unanticipated liabilities relating to the removal or remediation of toxic wastes or other environmental conditions. However, there is no assurance that we will not incur material liabilities in the future relating to toxic waste removal or other environmental conditions affecting land currently or previously owned.

Some of our homebuyers elect to purchase their homes with mortgages that are insured or guaranteed by certain government entities. In order for our homebuyers to finance their home purchases with Federal Housing Administration ("FHA")-insured or Veterans Administration ("VA")-guaranteed or United States Department of Agriculture ("USDA")-guaranteed mortgages, we are required to build such homes in accordance with the regulatory requirements of those agencies.

Some states have statutory disclosure requirements governing the marketing and sale of new homes. These requirements vary widely from state to state.

Some states require us to be registered as a licensed contractor, a licensed real estate broker and in some markets our sales agents are required to be registered as licensed real estate agents.

Human Capital

Human capital is our greatest asset. Developing our employees enhances each individual’s opportunity to progress their career at Meritage and enrich their work experience. We work to retain talent by offering competitive and comprehensive compensation and benefits that include health insurance, 401(k) savings plan with a competitive company match, paid time off, paid parental benefits, employee discounts, tuition reimbursement, and a wellness program, among many others. At December 31, 2021, we had 1,773 full-time employees, including 346 in management and administration, 55 in our title and insurance companies, 494 in sales and marketing, and 878 in construction and warranty operations. We are committed to creating an inclusive and positive culture for our employees in which everyone feels valued and invited to contribute. Our culture is guided by our core values where every employee is strongly encouraged to embrace opportunities to develop and grow their skills and careers. We have a robust talent recognition and succession planning model designed to help identify and develop talent and provide a roadmap for promotion of identified employees. Of our entire employee population at December 31, 2021, 40% were female and 25% were minorities. While we are proud of our current diversity, through a combination of targeted recruiting and talent development, we intend to expand the diversity of our employee base across the Company over the coming years. In 2021, we adopted a Human Rights Policy which applies to all employees and our Board of Directors, as well as contractors, subcontractors, vendors, suppliers and partners. The Human Rights Policy defines our responsibilities to adhere to the Universal Declaration of Human Rights. In addition, in 2021 we donated $300,000 to established charitable organizations that support racial equity and inclusion initiatives. These efforts are integrated in a broader diversity, equity and inclusion (DE&I) focus for the organization that we will extend into 2022 and beyond.

Our operations are carried out through both local and centralized management. Our corporate management team sets our strategy and leads decisions related to the Company's land acquisition, risk management, finance, cash management, capital allocation and information systems. Local operations are made up of our division employees, led by management with significant homebuilding experience and who possess a great depth of knowledge in their particular markets. Our employees are not unionized, and we have a highly engaged workforce. We act solely as a general contractor, and all construction operations are coordinated by our project managers and field superintendents who schedule and monitor third-party independent subcontractors. We may use independent consultants and contractors for certain architectural, engineering, advertising, technology and legal services, and we strive to maintain good relationships with our subcontractors and independent consultants and contractors. We promote an open-door policy where individuals are encouraged to voice concerns which are promptly addressed.

Our top priority from the very start of the COVID-19 pandemic has been the health, safety and well-being of our employees and their families, our trade partners and customers. From the onset, we have consulted the evolving guidelines and practices from the Centers for Disease Control and Prevention to shape our decisions in our sales offices, on our job sites and at our corporate and division headquarters. Our response to the COVID-19 pandemic continued throughout 2021, with policies and procedures that allowed our employees to work remotely where possible, and to safely and effectively return to the office at their discretion. We addressed actual and suspected COVID-19 cases in an effort to reduce the potential spread of COVID-19. We communicated early and often with our employees and provided several resources including a dedicated intranet site, webinars and trainings. We provided employees with personal protective equipment, access to temperature monitors, cleaning supplies and increased flexibility to work remotely. We also provided a vaccination incentive and paid time off for employees to support COVID-19 vaccination efforts.

Seasonality

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically sell more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. We typically benefit from the cash generated from home closings more in the third and fourth quarters than in the first and second quarters. In 2020 and 2021, historical cycles were impacted by COVID-19 and its impact on consumer behavior and supply chain, particularly as it relates to the homebuilding market, which resulted in prolonged construction timelines. We saw a slight return of seasonality in the second half of 2021 and expect our historical seasonal pattern to continue over the long term although it may continue to be affected by volatility in the homebuilding industry and in the overall economy.

Information about our Executive Officers

The names, ages, positions and business experience of our executive officers as of the date of this report are listed below (all ages are as of December 31, 2021):

Name

Age

Position

Steven J. Hilton

Executive Chairman

Phillippe Lord

Chief Executive Officer, Executive Vice President

Hilla Sferruzza

Chief Financial Officer, Executive Vice President

Clinton Szubinski

Chief Operating Officer, Executive Vice President

Javier Feliciano

Chief People Officer, Executive Vice President

Steven J. Hilton co-founded Monterey Homes in 1985, which merged with Homeplex in December 1996 and later became known as Meritage Homes. Mr. Hilton served as Co-Chairman and Co-Chief Executive Officer from July 1997 to May 2006, served as Chairman and Chief Executive Officer from May 2006 to December 2020, and became the Executive Chairman effective January 1, 2021.

Phillippe Lord was appointed Chief Executive Officer on January 1, 2021. Prior to his appointment as Chief Executive Officer, Mr. Lord was Chief Operating Officer, Executive Vice President from April 2015 to December 2020, Western Region President from 2012 through March 2015 and Vice President of Strategic Operations from 2008 through 2012.

Hilla Sferruzza was appointed Chief Financial Officer and Executive Vice President in April 2016. Prior to her appointment as Chief Financial Officer and Executive Vice President, Ms. Sferruzza was our Chief Accounting Officer and Corporate Controller since 2010 and has worked in other management roles at the Company since 2006.

Clinton Szubinski was appointed Chief Operating Officer, Executive Vice President on January 1, 2021. Prior to his appointment as Chief Operating Officer, Mr. Szubinski served as South Region President of Meritage Homes from 2018 to December 2020. Previously, Mr. Szubinski served in senior management roles at K. Hovnanian and CalAtlantic from 2014 to 2018 and from 2011-2014, was the Florida Region President at Meritage Homes.

Javier Feliciano joined Meritage in November 2015 as Chief Human Resources Officer (now "Chief People Officer"), Executive Vice President. From January 2013 through November 2015, Mr. Feliciano was employed by Apollo Education Group as Vice President, Human Resources and as HR Director from June 2010 through January 2013.

Item 1A. Risk Factors

The risk factors discussed below are factors that we believe could significantly impact our business, if they occur. These factors could cause results to differ materially from our historical results or our future expectations.

Risks Related to the Homebuilding Industry and Economy

Increases in interest rates or decreases in mortgage availability may make purchasing a home more difficult or less desirable and may negatively impact the ability to sell new and existing homes.

In general, housing demand is adversely affected by increases in interest rates and a lack of availability of mortgage financing. Most of our buyers finance their home purchases through our mortgage joint venture or third-party lenders providing mortgage financing. If mortgage interest rates increase and, consequently, the ability of prospective buyers to finance home purchases is adversely affected, our home sales and cash flow may be adversely affected and the impact may be material. These risks can also indirectly impact us to the extent our customers need to sell their existing homes to purchase a new home from us if the potential buyer of their home is unable to obtain mortgage financing. Although long-term interest rates currently remain at historic lows, it is predicted that market interest rates will increase in 2022 and beyond.

A homebuyers' ability to obtain a mortgage loan is largely subject to prevailing interest rates, lenders’ credit standards and appraisals, and the availability of government-supported programs, such as those from the FHA, the VA, Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). If credit standards or appraisal guidelines are tightened, or mortgage loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing. There can be no assurance that these programs will continue to be available or that they will be as accommodating as they currently are. Continued legislative and regulatory actions and more stringent underwriting standards could have a material adverse effect on our business if certain buyers are unable to obtain mortgage financing. A prolonged tightening of the financial markets could also negatively impact our business.

Our future operations may be adversely impacted by high inflation or deflation.

We, like other homebuilders, may be adversely affected during periods of high inflation, mainly from higher land, construction, labor and materials costs. Also, higher mortgage interest rates may significantly affect the affordability of mortgage financing to prospective buyers. Inflation could increase our cost of financing, materials and labor and could cause our financial results and profitability to decline. Traditionally, we have attempted to pass cost increases on to our customers through higher sales prices and inflation has not historically had a material adverse effect on our business. Although, in the event that we are unable to do so in a rising cost environment, our profitability could decline.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels. This could lead to deterioration in economic conditions, including an increase in the rate of unemployment. Deflation could also cause the value of our inventories to decline or reduce the value of existing homes below the related mortgage loan balance, which could potentially increase the supply of existing homes. These, or other factors that increase the risk of significant deflation, could have a negative impact on our business or financial results.

Supply shortages and other risks related to the demand for building materials could materially disrupt our operations and increase costs.

Our ability to timely construct our homes may be significantly impacted by circumstance beyond our control, such as work stoppages, shortages of qualified trades people, lack of availability of utility infrastructure and services, our need to rely on local subcontractors, and shortages or delays in availability of building materials. Constraints of raw materials and finished goods or in the distribution channels of our construction inputs can delay delivery of our homes to customers and can increase our building costs or lead to sales orders cancellations. For example, in 2021, supply chain constraints for various construction materials related to sustained demand amid the backdrop of a global pandemic have caused our construction cycle times to lengthen. We believe these conditions may continue in 2022 and potentially beyond. These delays impact the timing of our expected home closings and may also result in cost increases that we may not be able to pass to our current or future customers. Sustained increases in construction costs may, over time, erode our margins, and impact our total order and closing volumes.

Our ability to acquire and develop raw or partially finished lots may be negatively impacted if we are unable to secure performance bonds.

In connection with land development work on our raw or partially developed land, we are often required to provide performance bonds, letters of credit or other assurances for the benefit of the respective municipalities or governmental authorities. These instruments provide assurance to the beneficiaries that the development will be completed, or that in case we do not perform, that funds from these instruments are available for the municipality or governmental agency to arrange for completion of such work. Although such instruments are currently accessible, in the future additional performance bonds or

letters of credit may be difficult to obtain, or may become difficult to obtain on terms that are acceptable to us. If we are unable to secure such instruments, progress on affected projects may be delayed or halted or we may be required to expend additional cash, which may adversely affect our financial position and ability to grow our operations.

If home prices decline, potential buyers may not be able to sell their existing homes, which may negatively impact our sales.

As a homebuilder, we are subject to market forces beyond our control. In general, housing demand is impacted by the affordability of housing. Many homebuyers need to sell their existing homes in order to purchase a new home from us, and a weakness in the home resale market could adversely affect that ability. Declines in home prices could have an adverse effect on our homebuilding business volumes and cash flows.

Legislation related to tariffs could increase the cost to construct our homes.

The cost of certain building materials is influenced by changes in local and global commodity prices as well as government regulation, such as government-imposed tariffs on building supplies such as lumber and flooring materials. For example, during 2018 and 2019, we experienced increases in the prices of some building materials as a result of such tariffs. Such cost increases limit our ability to control costs, potentially reducing margins on the homes we build if we are not able to successfully offset the increased costs through higher sales prices. Additionally, tariffs pose a risk to our supply chain availability if we are forced to use alternative materials or products.

A reduction in our orders absorption levels may force us to incur and absorb additional community-level costs.

We incur certain overhead costs associated with our communities, such as marketing expenses, real estate taxes and HOA assessments and costs associated with the upkeep and maintenance of our model homes and sales complexes. If our orders absorptions pace decreases and the time required to close out our communities is extended, we would likely incur additional overhead costs, which would negatively impact our financial results. Additionally, we typically incur various land development improvement costs for a community prior to the commencement of home construction. Such costs include infrastructure, utilities, property taxes and other related expenses. A reduction in home absorption rates increases the associated holding costs and extends our time and ability to recover such costs.

The value of our real estate inventory may decline, leading to impairments and reduced profitability.

During the last significant homebuilding cycle downturn, and in certain isolated circumstances afterward, we had to impair many of our real-estate assets to fair-value, incurring large impairment charges which negatively impacted our financial results. Another decline in the homebuilding market may require us to re-evaluate the value of our land holdings and we could incur additional impairment charges, which would decrease both the book value of our assets and stockholders’ equity.

High cancellation rates may negatively impact our business.

Our backlog reflects the number and value of homes for which we have entered into non-contingent sales contracts with customers but have not yet delivered those homes. In connection with the sale of a home, our policy is to generally collect a deposit from our customers, although typically this deposit reflects a small percentage of the total purchase price, and due to local regulations, the deposit may, in certain circumstances, be fully or partially refundable prior to closing. If the prices for our homes in a given community decline, our neighboring competitors reduce their sales prices (or increase their sales incentives), interest rates increase, the availability of mortgage financing tightens or there is a downturn in local, regional or national economies, homebuyers may elect to cancel their home purchase contracts with us. Significant cancellations have previously had, and could in the future have, a material adverse effect on our business as a result of lost sales revenue and the accumulation of unsold housing inventory.

If we are unable to successfully compete in the highly competitive housing industry, our financial results and growth may suffer.

The housing industry is highly competitive. We compete for sales in each of our markets with national, regional and local developers and homebuilders, resale of existing homes, condominiums and available rental housing. Some of our competitors have greater financial resources and some may have lower costs than we do. Competition among homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, product type, amenities, design, innovation, quality and price. Competition is expected to continue and may become more intense, and there may be new entrants in the markets in which we currently operate and in markets we may enter in the future and our industry has recently experienced some consolidations. If we are unable to successfully compete, our financial results and growth could suffer.

We are subject to home warranty and construction defect claims arising in the ordinary course of business, which may lead to additional reserves or expenses.

Home warranty and construction defect claims are common in the homebuilding industry and can be costly. We sometimes encounter construction defect issues that may be alleged to be widespread within a single community or geographic area and we are currently managing such an issue, regarding alleged widespread stucco application issues in some of our markets. In order to account for future potential warranty and construction defect obligations, we establish a warranty reserve in connection with every home closing. Additionally, we maintain general liability insurance and generally require our subcontractors to provide a warranty and indemnity to us and insurance coverage for liabilities arising from their work; however, we cannot be assured that our warranty reserves and insurance and those subcontractors warranties, insurance and indemnities will be adequate to cover all warranty and construction defect claims for which we may be held responsible. For example, we may be responsible for applicable self-insured retentions, and certain claims may not be covered by insurance or may exceed applicable coverage limits, which could be material to our financial results. In addition, the costs of insuring against construction defect and product liability claims are high, and the amount of coverage offered by insurance companies is currently limited. There can be no assurance that this coverage will not be further restricted and become more costly. If the limits or coverages of our current and former insurance programs and/or those of our subcontractors prove inadequate, or we and/or our subcontractors are unable to obtain adequate, or reasonably priced, insurance against these types of claims in the future, or the amounts currently provided for future warranty or insurance claims are inadequate, we may experience losses that could negatively impact our financial results.

A major safety incident relating to our operations could be costly in terms of potential liabilities and reputational damage.

Construction sites are inherently dangerous and pose certain inherent health and safety risks to construction workers, employees and other visitors. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is important to the success of our development and construction activities. Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to claims resulting from personal injury or death. Such a failure could also generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our business, financial condition and operating results.

We experience fluctuations and variability in our operating results on a quarterly basis and, as a result, our historical performance may not be a meaningful indicator of future results.

We historically have experienced, and expect to continue to experience, variability in home sales and results of operations on a quarterly basis. As a result of such variability, our historical performance may not be a meaningful indicator of future results. Factors that contribute to this variability include:

•timing of home deliveries and land sales;

•the changing composition and mix of our asset portfolio;

•delays in construction schedules due to adverse weather, acts of God, reduced subcontractor availability and governmental requirements and restrictions;

•conditions of the real estate market in areas where we operate and of the general economy;

•governmental imposed restrictions and consumer reactions related to an epidemic or pandemic (such as stay-at-home orders and similar restrictions in 2020 related to the COVID-19 pandemic);

•the cyclical nature of the homebuilding industry; and

•costs and availability of materials and labor.

Our level of indebtedness may adversely affect our financial position and prevent us from fulfilling our debt obligations.

The homebuilding industry is capital intensive and requires significant up-front expenditures to secure land and pursue development and construction on such land. Accordingly, we incur substantial indebtedness to finance our homebuilding activities. At December 31, 2021, we had approximately $1.2 billion of indebtedness and $618.3 million of cash and cash equivalents. If we require working capital greater than that provided by our operations and current liquidity position, including the $717.6 million available to be drawn under our credit facility, we may be required to seek additional capital in the form of equity or debt financing from a variety of potential sources, including bank financing, public bonds or off-balance sheet

resources. There can be no assurance we would be able to obtain such additional capital on terms acceptable to us, if at all. The level of our indebtedness could have important consequences to our stockholders, including the following:

•our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes could be impaired;

•we could be required to use a substantial portion of our cash flow from operations to pay interest and principal on our indebtedness, which would reduce the funds available to us for other purposes such as land and lot acquisition, development and construction activities;

•although we have a relatively low level of indebtedness and a relatively high balance of cash and cash equivalents, some of our competitors may have additional access to capital, which may put us at a competitive disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition; and

•we may be more vulnerable to economic downturns and adverse developments in our business than some of our competitors.

We expect to generate cash flow to pay our expenses and to pay the principal and interest on our indebtedness with cash flow from operations or from existing working capital. Our ability to meet our expenses thus depends, to a large extent, on our future performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors. If we do not have sufficient funds, we may be required to refinance all or part of our existing debt, sell assets or borrow additional funds. We cannot guarantee that we will be able to do so on terms acceptable to us, if at all. In addition, the terms of existing or future debt agreements may restrict or limit us from pursuing any of these alternatives.

Our ability to obtain third-party financing may be negatively affected by any downgrade of our credit rating from one or more rating agencies.

We consider the availability of third-party financing to be a key component of our long-term strategy to grow our business either through acquisitions or through internal expansion. As of December 31, 2021, our credit ratings were BB+, Ba1, and BB+ by Standard and Poor’s Financial Services, Moody’s Investor Services and Fitch Ratings, respectively, the three primary rating agencies. Any downgrades from these ratings may impact our ability to obtain future additional financing, or to obtain such financing on terms that are favorable to us and therefore, may adversely impact our future operations.

The physical impacts of climate change such as natural disasters or extreme weather events could increase our costs and adversely affect our operations.

The climates of many of the states in which we have homebuilding operations, including California, Texas, Florida and other coastal areas present increased risks of, and have recently experienced, adverse weather and natural disasters which may be caused by, or exacerbated by, climate change. We may not be able to insure against some of these risks, and damage or destruction to our homes under construction or our building lots and community improvements caused by adverse weather or natural disasters could result in uninsured or underinsured losses. We could also suffer significant construction delays or substantial fluctuations in the pricing or availability of building materials and labor due to such disasters. Any of these events could cause a delay in scheduled closings and a decrease in our revenue, cash flows and earnings.

Risks Related to Our Strategy

Our long-term success depends on the availability of lots and land that meet our land investment criteria.

The availability of lots and land that meet our underwriting standards depends on a number of factors outside of our control, including land availability in general, competition with other homebuilders and land buyers, credit market conditions, legal and government agency processes and regulations, inflation in land prices, zoning, availability of utilities, our ability and the costs to obtain building permits, the amount of impact fees, property tax rates and other regulatory requirements. If suitable lots or land becomes less available, or the cost of attractive land increases, it could reduce the number of homes that we may be able to build and sell and reduce our anticipated margins, each of which could adversely impact our financial results. The availability of suitable land assets could also affect the success of our strategic initiative to increase our number of actively selling communities and to maintain profitability.

If our current strategies are not successful, it could have negative consequences on our operations, financial position and cash flows.

We focus our community designs, product offerings and marketing on entry-level and first move-up homes based on our belief that these two product types will comprise the majority of the market demand in the near and medium term outlook. If there is a shift away from, or decrease in, the demand for first-time and first move-up buyers or our entry-level home offerings, it could have negative consequences on our operations, financial position and cash flows.

Reduced levels of sales may cause us to re-evaluate the viability of existing land option contracts, resulting in a potential termination of these contracts which may lead to impairment charges.

In the prior homebuilding cycle, a significant portion of our lots were controlled under option contracts. Such options generally require a cash deposit that will be forfeited if we do not exercise the option or proceed with the lot purchase(s). During the last significant downturn, we forfeited significant amounts of deposits and wrote off significant amounts of related pre-acquisition costs related to projects we no longer deemed feasible, as they were not projected to generate acceptable returns. Although our participation in such options is more limited at this time, another downturn in the homebuilding market may cause us to re-evaluate the feasibility of our optioned projects which may result in us forfeiting associated deposits, which would reduce our assets and stockholders’ equity.

Our lack of geographic diversification could adversely affect us if the homebuilding industry in our markets decline.

We have operations in Texas, Arizona, California, Colorado, Florida, North Carolina, South Carolina, Georgia and Tennessee. Although we have, in recent years, expanded our operations to new markets, our geographic diversification is still more limited than some of our competitors and could adversely impact us if the homebuilding business in our current markets should decline, since we may not have a balancing opportunity in other geographic regions.

Our ability to build energy-efficient technologies at a profitable price point may be replicated by other builders in the future, which could reduce our competitive advantage.

We believe we currently have a competitive advantage over many of the other production homebuilders by virtue of our energy efficiency technologies. Our communities offer a high level of energy-saving features included in the base price of our homes, and most of our single family detached home plans can accommodate the incorporation of optional solar features to further optimize energy savings. However, as the demand for energy-efficient homes continues to grow along with government imposed building requirements and societal responses to reduce potential climate change impacts, and other builders become more inclined or required by changing regulatory standards to offer more energy efficient technologies and offer them at a similar or lower price point, it could diminish our competitive advantage in the marketplace.

Shortages in the availability of subcontract labor may delay construction schedules and increase our costs.

We conduct our construction operations only as a general contractor. Virtually all construction and development work is performed by unaffiliated third-party consultants and subcontractors. As a consequence, we depend on the continued availability of and satisfactory performance by these consultants and subcontractors for the construction of our communities and homes and to provide related materials. The cost of labor may also be adversely affected by shortages of qualified trades people, changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration. Throughout various homebuilding cycles, we have experienced shortages of skilled labor in certain markets, which led to increased labor costs and delayed construction schedules. For example, we experienced delays in our construction cycle time in 2021 due to a limited pool of subcontract labor caused by the combined impact of elevated demand for homes and government restrictions on certain activities in some geographies in response to the global pandemic. Although we continually strive to be a partner of choice with our trades, we cannot be assured that in the future there will be a sufficient supply of, or satisfactory performance by, these unaffiliated third-party subcontractors and consultants, which could have a material adverse effect on our business.

Operational Risks

Information technology failures and data security breaches could harm our business.

We use information technology and other computer resources to carry out important operational, financial and marketing activities as well as maintain our business records. Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards. We and our service providers employ what we believe are appropriate security, disaster recovery and other preventative and corrective systems and processes. Additionally, we maintain cyber-security insurance and require our employees to complete an annual information security training and compliance program; however, our ability to conduct our business may be impaired if these information technology resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such

hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. For example, during the first quarter of 2020, some of our systems were affected by a malware attack that encrypted certain information on some of our systems and resulted in limitations to certain employee access for a short duration to certain of our systems and services, although all core operating activities continued during our remediation process. We completed this remediation process and our computer systems were restored, and the incident did not have a material adverse effect on our results of operations and/or financial condition and did not result in any exfiltration of data.

We cannot be assured, however, that similar or more serious attacks will not occur in the future and a significant and extended disruption in the functioning of our information technology and other computer resources could damage our reputation and cause us to lose customers and sales, result in the unintended public disclosure or the misappropriation of proprietary, personal and confidential information (including information about our homebuyers, employees and business partners), and require us to incur significant expense to address and remediate these kinds of issues. The release of confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our consolidated financial statements and reputation. In addition, the costs of maintaining adequate protection against such threats, depending on their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective efforts, are expected to continue to increase in the future and may be material to our consolidated financial statements.

The loss of key personnel may negatively impact us.

Our success largely depends on the continuing services of certain key employees and our ability to attract and retain qualified personnel. We have employment agreements with certain key employees who we believe possess valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate. The loss of the services of such key employees could harm our operations and business plans.

Regulatory Risks

Expirations, amendments or changes to tax laws, incentives or credits currently available to us and our homebuyers may negatively impact our business.

Under previous tax law, certain expenses of owning a home, including mortgage loan interest costs and real estate taxes, generally were deductible expenses for the purpose of calculating an individual's federal, and in some cases state, tax liability. However, the Tax Cuts and Jobs Act (the "Tax Act") signed into law in December 2017 limited these deductions for some individuals. The Tax Act caps individual state and local tax deductions at $10,000 for the aggregate of state and local real property and income taxes or state and local sales taxes. Additionally, the Tax Act reduces the cap on mortgage interest deduction to $750,000 of debt for debt incurred after December 15, 2017. The limits on deductibility of mortgage interest and property taxes may increase the after-tax cost of owning a home for some individuals. Any increases in personal income tax rates and/or additional tax deduction limits relating to the cost of home ownership could adversely impact demand for homes, including homes we build, which could adversely affect the results of our operations.

We are subject to federal and state income taxes and recognize benefits from certain allowable deductions. Increases in statutory tax rates or the elimination or reduction of available deductions could adversely affect the results of our operations and the realization of our deferred tax assets.

Our income tax provision and other tax liabilities may be insufficient if taxing authorities initiate and are successful in asserting tax positions that are contrary to our position.

In the normal course of business, we are audited by various federal, state and local authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and other taxes. Although we believe our approach to determining the appropriate tax treatment is supportable and in accordance with tax laws and regulations and relevant accounting literature, it is possible that the final tax authority will take a tax position that is materially different than ours. As each audit is conducted, adjustments, if any, are recorded in our consolidated financial statements in the period determined. Such differences could have a material adverse effect on our income tax provision or benefit, or other tax reserves, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period. We have no federal or state income tax examinations being conducted at this time.

Failure to comply with laws and regulations by our employees or representatives may harm us.

We are required to comply with applicable laws and regulations that govern all aspects of our business including land acquisition, development, home construction, labor and employment, mortgage origination, insurance, title and escrow operations, sales and warranty. It is possible that individuals acting on our behalf could intentionally or unintentionally violate some of these laws and regulations. Although we endeavor to comply with such laws and regulations and take immediate action if we become aware of such violations, we may incur fines, penalties or losses as a result of these actions and our reputation with governmental agencies and our customers may be damaged. Further, other acts of bad judgment may also result in negative publicity and/or financial consequences.

We are subject to extensive government regulations that could cause us to incur significant liabilities or restrict our business activities.

Regulatory requirements could cause us to incur significant liabilities and costs and could restrict our business activities. We are subject to local, state and federal statutes, codes, and rules regulating labor and employment matters, relationships with trade partners and their employees, certain land development matters, as well as building and site design and construction. We are subject to various fees and charges of government authorities designed to defray the cost of providing certain governmental services and improvements. We may be subject to additional costs and delays or may be precluded entirely from building projects because of “no-growth” or “slow-growth” initiatives, building permit ordinances, building moratoriums, or similar government regulations that could be imposed in the future due to health, safety, climate, welfare or environmental concerns. We must also obtain licenses, permits and approvals from government agencies to engage in certain activities, the granting or receipt of which are beyond our control and could cause delays in our homebuilding projects.

With growing concern from government agencies and the general public over the effects of climate change on the environment, we may be subject to additional regulatory responses to reduce greenhouse gas emissions and combat climate change that may increase our costs particularly as they relate to land development and home construction activities. Most recently, for example, in California, we were subject to the California Energy Commission’s Building Energy Efficiency Standards under Title 24. As part of the updated building codes, all homes constructed in California with permits obtained in 2020 and beyond are required to have solar panels, which we offer as standard feature for homes built in the state. Such compliance has not had a material impact on our operations; however, it could increase our operating and compliance costs in the future or require additional technology and capital investment. These and other similar environmental laws or permit restrictions may also result in production delays and may prohibit or severely restrict development in certain environmentally sensitive or geographic areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber. While we believe we are complying in all material respects with existing climate-related government standards and regulations applicable to our business, we also cannot predict our future exposure given the rapidly changing nature of environmental matters.

There is a variety of new legislation being enacted, or considered for enactment at the federal, state, local and international levels relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct homes. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. Similarly, energy-and climate-related initiatives affect a wide variety of companies throughout the United States and the world and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy and climate-related regulations.

The increasing attention to ESG matters and our responses to these matters could have an adverse effect on our business. We published our inaugural ESG report in 2021. We voluntarily followed certain reporting frameworks in our ESG report that we believe are of value to our investors and other stakeholders. We intend to continue to research, evaluate, and implement applicable disclosures and initiatives related to ESG matters, however, if we are unable to adequately address such ESG matters or fail to comply with future mandatory reporting requirements, it could negatively impact our reputation and our business results.

Our financial services operations are subject to extensive regulations that could cause us to incur significant liabilities or restrict our business activities.

Our wholly-owned title company, Carefree Title, provides title insurance and closing settlement services for our homebuyers. The title and settlement services provided by Carefree Title are subject to various regulations, including regulation by state banking and insurance regulations.

Our mortgage joint venture is engaged in mortgage broker activities and provides services to our homebuyers. Potential changes to federal and state laws and regulations could have the effect of limiting our activities or how our mortgage joint venture conducts its operations and this could have an adverse effect on our results of operations. The mortgage industry remains under intense scrutiny and continues to face increasing regulation at the federal, state and local level. Although we do not originate mortgages, we are directly or indirectly subject to certain of these regulations. In addition, if we are determined to have violated federal or state regulations, we face the loss of our licenses or other required approvals or we could be subject to fines, penalties, civil actions or we could be required to suspend our activities, each of which could have an adverse effect on our reputation, results and operations.

General Risk Factors

Negative publicity could adversely affect our reputation and our business, financial results and stock price.

Unfavorable media related to our industry, company, brand, personnel, operations, business performance, or prospects may impact our stock price and the performance of our business, regardless of its accuracy or inaccuracy. The speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media outlets, websites, "tweets", and blogs. Our success in maintaining and expanding our brand image depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.

Our business could be materially disrupted by an epidemic or pandemic (such as the present COVID-19 pandemic), or fear of such an event, and the measures that federal, state and local governments and/or health authorities implement to address it.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of building materials, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors can be significantly adversely affected by a variety of factors beyond our control. For example, the COVID-19 pandemic and the measures undertaken by governmental authorities to address it, initially disrupted or prevented us from operating parts our business in the ordinary course. With the exception of a brief pause in March and April of 2020, the COVID-19 pandemic and its effects on the economy have not adversely affected our results of operations to date. However, future disruptions and governmental actions combined with any associated economic and/or social instability or distress, may have an adverse impact on our results of operations, financial condition and cash flows.

Any of the above risk factors could have a material adverse effect on any investment in our bonds and common stock. As a result, investors could lose some or all of their investment.

Special Note of Caution Regarding Forward-Looking Statements

In passing the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Congress encouraged public companies to make “forward-looking statements” by creating a safe-harbor to protect companies from securities law liability in connection with forward-looking statements. We intend to qualify both our written and oral forward-looking statements for protection under the PSLRA.

The words “believe,” “expect,” “anticipate,” “forecast,” “plan,” “intend,” “may,” “will,” “should,” “could,” “estimate,” "target," and “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. All statements we make other than statements of historical fact are forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933 ("Securities Act"), and Section 21E of the Exchange Act. Forward-looking statements in this Annual Report include statements concerning our belief that we have ample liquidity; our goals, strategies and strategic initiatives and the anticipated benefits relating thereto; our intentions and the expected benefits and advantages of our product and land positioning strategies, including with respect to our focus on the first-time and first move-up buyer and housing demand for affordable homes; the benefits of and our intentions to use options to acquire land; our design center strategy; our exposure to supplier concentration risk and other matters concerning our supply chain; our delivery of substantially all of our backlog existing as of year end; our positions and our expected outcome relating to litigation in general; the sufficiency of our warranty reserves; our intentions to not pay dividends; growth in the first-time buyer segment that are seeking entry-level homes; the timing, locations and targeted number of new community openings in 2022 and beyond; that we may repurchase our debt and equity securities; our non-use of derivative financial instruments; expectations regarding our industry and our business into 2022 and beyond, including the potential impact thereon of COVID-19 and governmental imposed restrictions and reaction thereto; the demand for and the pricing of our homes; our land and lot acquisition strategy (including that we will redeploy cash to acquire well-positioned finished lots and that we may participate in joint ventures or opportunities outside of our existing markets if opportunities arise and the benefits relating thereto); that we may expand into new markets; the availability of labor and materials for our operations; that we may seek additional debt or equity capital; our expectation that existing guarantees, letters of credit and performance and surety bonds will not be drawn on; the sufficiency of our insurance coverage and warranty reserves; the sufficiency of our capital resources to support our business strategy; the sufficiency of our land pipeline; the impact of new accounting standards and changes in accounting estimates; trends and expectations concerning sales prices, sales orders, cancellations, construction and materials costs, gross margins, land costs, community counts and profitability and future home inventories; our future cash needs; the impact of seasonality; and our future compliance with debt covenants.

Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements, and that could negatively affect our business are discussed above in this report under the heading “Risk Factors.”

Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, the investment community is urged not to place undue reliance on forward-looking statements. In addition, we undertake no obligations to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate office is in a leased building located in Scottsdale, Arizona with approximately 72,000 square feet and a September 30, 2023 lease expiration.

We lease an aggregate of approximately 325,000 square feet of office space in our markets for our operating divisions, corporate and executive offices.

Item 3. Legal Proceedings

We are involved in various routine legal and regulatory proceedings, including, without limitation, warranty claims and litigation and arbitration proceedings alleging construction defects. In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors. Additionally, some such claims are also covered by insurance. In addition to our warranty reserve, we have approximately $1.0 million of total reserves not related to warranty or construction defect matters. See Note 1 and Note 16 of the accompanying consolidated financial statements for additional information related to construction defect and warranty related reserves. With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable. Historically, most disputes regarding warranty claims are resolved prior to litigation.

We believe there are no pending legal or warranty matters that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange under the symbol "MTH". On February 1, 2022 there were 139 owners of record of our common stock. A substantially greater number of owners of our common stock are beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.

The transfer agent for our common stock is Computershare, Inc., 462 South 4th Street, Louisville, KY 40202 (www.computershare.com).

The following graph compares the five-year total return of our common stock with the S&P 500 Index and the Dow Jones US Home Construction Index. The graph assumes $100 invested as of December 31, 2016 in Meritage Common Stock, the S&P 500 Index and the Dow Jones US Home Construction Index, and the re-investment of all dividends. The performance of our common stock depicted in the graphs is not indicative of future performance.


	2016	2017	2018	2019	2020	2021
Meritage Homes Corporation	100.00	147.13	105.52	175.60	237.99	350.75
S&P 500 Index	100.00	119.17	122.08	143.97	166.96	211.27
Dow Jones US Home Construction Index	100.00	175.09	118.84	174.26	213.42	321.93

The preceding Performance Graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any filing under the Securities Act or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

Historically, we have not declared cash dividends, nor do we intend to declare cash dividends in the foreseeable future. We plan to retain our earnings to finance the continuing operation and growth of the business. Future cash dividends, if any, will depend upon our financial condition, results of operations, capital requirements, statutory requirements, restrictions imposed by our Credit Facility, as well as other factors considered relevant by our Board of Directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

Issuer Purchases of Equity Securities

On February 13, 2019, the Board of Directors authorized a new stock repurchase program, authorizing the expenditure of

up to $100.0 million to repurchase shares of our common stock. On November 13, 2020, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program. On August 12, 2021, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program. There is no stated expiration for this program. The repurchases of the Company's shares may be made in the open market, in privately negotiated transactions, or otherwise. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as the market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. We acquired 639,346 shares of our common stock at an aggregate purchase price of $61.0 million for the year ended December 31, 2021. As of December 31, 2021, there was approximately $153.4 million available under this program to repurchase shares.

A summary of the Company's repurchase activity for the three months ended December 31, 2021 is as follows:


Period	Total Number of Shares Purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
October 1, 2021 - October 31, 2021	243,885	$	98.30	243,885	$	153,380,935
November 1, 2021 - November 30, 2021	—	$	—	—	$	153,380,935
December 1, 2021 - December 31, 2021	—	$	—	—	$	153,380,935
Total	243,885			243,885

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Industry Conditions

At Meritage, we continue to focus on enhancing our entry-level and first move-up product through our commitment to simplification and remaining focused on our key financial initiatives of home closing gross margin improvement, selling, general and administrative cost control, balance sheet management and long-term community count growth. As of December 31, 2021, 98% of our ending number of actively selling communities are targeted to first-time or first move-up buyers and those buyer segments represented approximately 98% of our orders in 2021. In 2021, supply chain constraints and labor shortages caused by COVID-19 and other economic-related disruptions impacted our production and the homebuilding industry as a whole. Through long cultivated relationships with our national and local partners, we were able to navigate the limitations and expect to continue to utilize our spec-heavy, limited SKU operating model to manage the supply chain concerns that are expected to continue for at least the next several quarters.

Summary Company Results

Total home closing revenue increased 14.1% due to higher home closing volume and higher ASPs, growing to our highest annual home closing revenue in Company history of $5.1 billion for the year ended December 31, 2021 from $4.5 billion in 2020. Home closing gross margin for the year ended December 31, 2021 improved by 580 basis points to 27.8% while gross margin for the year ended December 31, 2020 was 22.0%. The higher margin in 2021 reflects increased pricing power, higher closings and effective cost controls, despite rising prices for lumber and other commodities. We recorded impairment charges of approximately $2.1 million during the year ended December 31, 2021, primarily resulting from the decision to sell land assets that no longer fit our strategy, compared to $24.9 million of similar charges in 2020. General and administrative expenses as a percentage of home closing revenue held steady at 3.6% in both 2021 and 2020, but did increase $22.4 million over the prior year to $181.4 million, primarily driven by higher performance related compensation expenses and a higher employee headcount. Interest expense decreased to $0.3 million for the year ended December 31, 2021 from $2.2 million in 2020, as we benefited from lower interest rates as a result of our debt refinancing in April 2021 and more capitalization of interest on a higher balance of qualified assets. In connection with the debt refinancing transaction, we recognized an $18.2 million loss on early extinguishment of debt (see Note 7 in the accompanying financial statements for additional information). Pre-tax net earnings of $954.8 million in 2021 increased 79.0% from $533.6 million in 2020. Our effective tax rate in 2021 was 22.8% as compared to a 20.6% effective tax rate in 2020. Net income for the year ended December 31, 2021 was $737.4 million compared to $423.5 million in 2020.

Our results for 2021 reflect strong growth in both closings and orders as buyers took advantage of the persistent low interest-rate environment and capitalized on their desire to purchase their first home or move out of their existing home and transition to a larger, healthier home with indoor space to accommodate work and school from home needs and outdoor space to enjoy. We ended 2021 with 12,801 closings, our highest closing volume in Company history and represented an 8.2% increase over 11,834 closings in 2020. Orders were relatively flat year-over-year, at 13,808 orders for the year compared to 13,724 in 2020 due to our metering of orders to align with production constraints. At December 31, 2021, our backlog of $2.5 billion on 5,679 units increased by 38.8% in value, compared to $1.8 billion on 4,672 units at December 31, 2020. Supported by strong market demand, our full year cancellation rate on sales orders as a percentage of gross sales units in 2021 decreased to 10.2% as compared to 13.6% for the year ended December 31, 2020.

Company Positioning

We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our commitment to an all-spec strategy for our entry-level homes, our simplified first move-up design studio process, and industry-leading innovation in energy-efficient product offerings and automation create a differentiated strategy that has aided us in our growth in the highly competitive new home market.

Our focus includes the following strategic initiatives:

•Expanding our community count and market share;

•Continuously improving the overall home buying experience through simplification and innovation;

•Leveraging and expanding on technological solutions through digital offerings to our customers, such as our virtual home tours, interactive maps, digital financial services offerings and online warranty portal;

•Increasing homeowner satisfaction by setting industry standards for energy-efficiency and offering healthier, safer homes that come equipped with standard features such as multi-speed HVAC systems to save energy and improve air quality and enhanced security features;

•Simplifying our production process to allow us to more efficiently build our homes and reduce our construction costs, which in turn allows us to competitively price our homes and deliver them on a shorter timeline; and

•Improving our home closing gross profit by growing closing volume, allowing us to better leverage our overhead;

In order to maintain focus on growing our business, we also remain committed to the following:

•Maintaining a healthy orders pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities;

•Achieving or maintaining a position of at least 5% market share in all of our markets;

•Continuing to innovate and promote our energy efficiency program and our M.Connected® Automation Suite to create differentiation for the Meritage brand;

•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on quality construction and warranty management;

•Carefully managing our liquidity and a strong balance sheet; we ended the year with a 27.6% debt-to-capital ratio and a 15.1% net debt-to-capital ratio;

•Maximizing returns to our shareholders, most recently through our improved financial performance and share repurchase program; and

•Promoting a positive environment for our employees through our commitment to foster DE&I and providing market-competitive benefits in order to develop and motivate our employees and to minimize turnover and to maximize recruitment efforts.

Critical Accounting Estimates

We have established various accounting policies that govern the application of United States generally accepted accounting principles (“GAAP”) in the preparation and presentation of our consolidated financial statements. Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Form 10-K. Certain of these policies involve critical accounting estimates, which are significant judgments, assumptions and estimates by management in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the carrying value of certain assets and liabilities, and revenue and costs. We are subject to uncertainties such as the impact of future events, economic, environmental, political and regulatory factors and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are revised when circumstances warrant. Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements. The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts, industry practices, and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.

The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgements are as follows:

Real Estate Valuation and Cost of Home Closings

Real estate inventory is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by ASC 360-10, Property, Plant and Equipment. Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any. Land and development costs are typically allocated and transferred to homes when home construction begins. Home construction costs are accumulated on a per-home basis, while selling and marketing costs are expensed as incurred. Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase. Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in that community or phase. When a home closes, we may have incurred costs for goods and services that have not yet been paid. We accrue a liability to capture such obligations in connection with the home closing which is charged directly to cost of sales.

We capitalize qualifying interest to inventory during the development and construction periods. Capitalized interest is included in cost of closings when the related inventory is closed. Included within our real estate inventory is land held for development and land held for sale. Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for these inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.

We rely on certain estimates to determine our construction and land development costs. Construction and land costs are comprised of direct and allocated costs, including estimated future costs. In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred. Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues encountered during construction and development and other factors beyond our control. To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.

Typically, a community’s life cycle ranges from three to five years, commencing with the acquisition of the land, continuing through the land development phase, if applicable, and concluding with the sale, construction and closing of the homes. Actual community lives will vary based on the size of the community, the orders absorption rates and whether the land purchased was raw, partially-developed or in finished status. Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter.

All of our land inventory and related real estate assets are periodically reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP. If the undiscounted cash flows expected to be generated by an asset are lower than its carrying amount, impairment charges are recorded to write down the asset to its estimated fair value. Our determination of fair value is based on projections and estimates. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. We conduct an analysis if indicators of a decline in value of our land and real estate assets exists. If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the assets’ carrying amount exceeds their fair value. The impairment of a community is allocated to each lot on a straight-line basis and is recognized in Cost of closings in the period in which the impairment is determined. We recorded impairment charges of approximately $2.1 million during the year ended December 31, 2021, primarily resulting from the decision to sell land assets that no longer fit our strategy, compared to $24.9 million of similar charges in 2020.

We have not made any material changes in our methodology or significant assumptions used to record and evaluate our Real estate and Cost of home closings during the past three years.

Warranty Reserves

We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally required to repair and replace any product or labor defects and cover any resultant damages, we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. As such, warranty reserves are recorded to cover our exposure to costs for materials and labor not expected to be covered by our subcontractors or available insurance to the extent they relate to warranty-type claims subsequent to the delivery of a home to the homeowner. Reserves are reviewed on a regular basis and, with the assistance of an actuary for the structural warranty, we determine their sufficiency based on our and industry-wide historical data and trends. These reserves are subject to variability due to uncertainties regarding material or construction defect claims, the markets in which we build, claim settlement history, insurance, legal interpretations and expected recoveries, among other factors.

At December 31, 2021, our warranty reserve was $26.3 million, reflecting an accrual of 0.1% to 0.5% of a home’s sale price depending on our loss history in the geographic area in which the home was built. A 10% increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $1.8 million in 2021. There were no adjustments to our reserve balance for the years ended December 31, 2021 and December 31, 2020. While we believe that the warranty reserve is sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Furthermore, there can be no assurances that future economic, financial or legislative developments might not lead to a significant change in the reserve.

We have not made any material changes in our methodology or significant assumptions used to record and evaluate our Warranty Reserves during the past three years.

Valuation of Deferred Tax Assets

We account for income taxes using the asset and liability method, which requires that deferred tax assets and liabilities be recognized based on future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.

In accordance with ASC 740-10, Income Taxes, we evaluate our deferred tax assets by tax jurisdiction, including the benefit from net operating losses ("NOLs") by tax jurisdiction, to determine if a valuation allowance is required. Companies must assess, using significant judgments, whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experience with operating losses and experience of utilizing tax credit carryforwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at December 31, 2021.

We have not made any material changes in our methodology or significant assumptions used to evaluate our Deferred tax assets during the past three years.

Home Closing Revenue, Home Orders and Order Backlog - Segment Analysis

The composition of our closings, home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects and product lines open and existing projects wind down. Further, individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots (e.g. cul-de-sac, view lots, greenbelt lots). These variations result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods.

For discussion of our fiscal 2020 results compared to our fiscal 2019 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our Annual Report on Form 10-K for the year ended December 31, 2020.

The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands):



	Years Ended December 31,				Year Over Year
	2021		2020		Chg $		Chg %
Home Closing Revenue
Total
Dollars	$	5,094,873	$	4,464,389	$	630,484	14.1	%
Homes closed	12,801		11,834		967		8.2	%
Average sales price	$	398.0	$	377.3	$	20.7	5.5	%
West Region
Arizona
Dollars	$	802,401	$	666,223	$	136,178	20.4	%
Homes closed	2,183		2,019		164		8.1	%
Average sales price	$	367.6	$	330.0	$	37.6	11.4	%
California
Dollars	$	776,528	$	774,349	$	2,179	0.3	%
Homes closed	1,242		1,231		11		0.9	%
Average sales price	$	625.2	$	629.0	$	(3.8)	(0.6)	%
Colorado
Dollars	$	335,490	$	354,677	$	(19,187)	(5.4)	%
Homes closed	630		738		(108)		(14.6)	%
Average sales price	$	532.5	$	480.6	$	51.9	10.8	%
West Region Totals
Dollars	$	1,914,419	$	1,795,249	$	119,170	6.6	%
Homes closed	4,055		3,988		67		1.7	%
Average sales price	$	472.1	$	450.2	$	21.9	4.9	%
Central Region - Texas
Central Region Totals
Dollars	$	1,500,682	$	1,273,661	$	227,021	17.8	%
Homes closed	4,165		3,894		271		7.0	%
Average sales price	$	360.3	$	327.1	$	33.2	10.1	%
East Region
Florida
Dollars	$	600,554	$	540,644	$	59,910	11.1	%
Homes closed	1,663		1,466		197		13.4	%
Average sales price	$	361.1	$	368.8	$	(7.7)	(2.1)	%
Georgia
Dollars	$	249,882	$	229,577	$	20,305	8.8	%
Homes closed	647		642		5		0.8	%
Average sales price	$	386.2	$	357.6	$	28.6	8.0	%
North Carolina
Dollars	$	528,840	$	388,776	$	140,064	36.0	%
Homes closed	1,390		1,132		258		22.8	%
Average sales price	$	380.5	$	343.4	$	37.1	10.8	%
South Carolina
Dollars	$	129,367	$	105,369	$	23,998	22.8	%
Homes closed	377		331		46		13.9	%
Average sales price	$	343.1	$	318.3	$	24.8	7.8	%
Tennessee
Dollars	$	171,129	$	131,113	$	40,016	30.5	%
Homes closed	504		381		123		32.3	%
Average sales price	$	339.5	$	344.1	$	(4.6)	(1.3)	%
East Region Totals
Dollars	$	1,679,772	$	1,395,479	$	284,293	20.4	%
Homes closed	4,581		3,952		629		15.9	%
Average sales price	$	366.7	$	353.1	$	13.6	3.9	%



	Years Ended December 31,				Year Over Year
	2021		2020		Chg $		Chg %
Home Orders (1)
Total
Dollars	$	5,796,813	$	5,174,938	$	621,875	12.0	%
Homes ordered	13,808		13,724		84		0.6	%
Average sales price	$	419.8	$	377.1	$	42.7	11.3	%
West Region
Arizona
Dollars	$	951,730	$	823,339	$	128,391	15.6	%
Homes ordered	2,335		2,501		(166)		(6.6)	%
Average sales price	$	407.6	$	329.2	$	78.4	23.8	%
California
Dollars	$	773,166	$	956,681	$	(183,515)	(19.2)	%
Homes ordered	1,191		1,530		(339)		(22.2)	%
Average sales price	$	649.2	$	625.3	$	23.9	3.8	%
Colorado
Dollars	$	429,499	$	361,619	$	67,880	18.8	%
Homes ordered	750		750		—		—	%
Average sales price	$	572.7	$	482.2	$	90.5	18.8	%
West Region Totals
Dollars	$	2,154,395	$	2,141,639	$	12,756	0.6	%
Homes ordered	4,276		4,781		(505)		(10.6)	%
Average sales price	$	503.8	$	447.9	$	55.9	12.5	%
Central Region - Texas
Central Region Totals
Dollars	$	1,700,744	$	1,472,183	$	228,561	15.5	%
Homes ordered	4,413		4,476		(63)		(1.4)	%
Average sales price	$	385.4	$	328.9	$	56.5	17.2	%
East Region
Florida
Dollars	$	738,132	$	590,966	$	147,166	24.9	%
Homes ordered	1,981		1,645		336		20.4	%
Average sales price	$	372.6	$	359.2	$	13.4	3.7	%
Georgia
Dollars	$	283,649	$	237,576	$	46,073	19.4	%
Homes ordered	694		665		29		4.4	%
Average sales price	$	408.7	$	357.3	$	51.4	14.4	%
North Carolina
Dollars	$	591,193	$	472,483	$	118,710	25.1	%
Homes ordered	1,501		1,367		134		9.8	%
Average sales price	$	393.9	$	345.6	$	48.3	14.0	%
South Carolina
Dollars	$	132,779	$	122,049	$	10,730	8.8	%
Homes ordered	390		380		10		2.6	%
Average sales price	$	340.5	$	321.2	$	19.3	6.0	%
Tennessee
Dollars	$	195,921	$	138,042	$	57,879	41.9	%
Homes ordered	553		410		143		34.9	%
Average sales price	$	354.3	$	336.7	$	17.6	5.2	%
East Region Totals
Dollars	$	1,941,674	$	1,561,116	$	380,558	24.4	%
Homes ordered	5,119		4,467		652		14.6	%
Average sales price	$	379.3	$	349.5	$	29.8	8.5	%

(1)Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed.



	Years Ended December 31,
	2021		2020
	Ending	Average	Ending	Average
Active Communities
Total	259	223.8	195	219.7
West Region
Arizona	39	36.2	33	34.8
California	22	19.0	16	23.3
Colorado	17	14.6	11	12.0
West Region Totals	78	69.8	60	70.1
Central Region - Texas
Central Region Totals	73	65.4	63	66.9
East Region
Florida	41	34.8	31	33.8
Georgia	15	11.2	7	12.5
North Carolina	26	24.6	21	20.6
South Carolina	14	8.8	6	6.0
Tennessee	12	9.2	7	9.8
East Region Totals	108	88.6	72	82.7



	Years Ended December 31,
	2021		2020
Cancellation Rates (1)
Total	10.2	%	13.6	%
West Region
Arizona	10.8	%	12.2	%
California	10.0	%	15.7	%
Colorado	10.4	%	14.3	%
West Region Totals	10.5	%	13.6	%
Central Region - Texas
Central Region Totals	11.9	%	15.4	%
East Region
Florida	7.0	%	11.7	%
Georgia	10.3	%	12.4	%
North Carolina	7.0	%	9.6	%
South Carolina	15.9	%	13.0	%
Tennessee	9.5	%	16.3	%
East Region Totals	8.5	%	11.8	%

(1)Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period.


	At December 31,				Year Over Year
	2021		2020		Chg $		Chg %
Order Backlog (1)
Total
Dollars	$	2,516,164	$	1,812,547	$	703,617	38.8	%
Homes in backlog	5,679		4,672		1,007		21.6	%
Average sales price	$	443.1	$	388.0	$	55.1	14.2	%
West Region
Arizona
Dollars	$	493,575	$	343,917	$	149,658	43.5	%
Homes in backlog	1,145		993		152		15.3	%
Average sales price	$	431.1	$	346.3	$	84.8	24.5	%
California
Dollars	$	271,383	$	274,680	$	(3,297)	(1.2)	%
Homes in backlog	393		444		(51)		(11.5)	%
Average sales price	$	690.5	$	618.6	$	71.9	11.6	%
Colorado
Dollars	$	198,832	$	104,709	$	94,123	89.9	%
Homes in backlog	328		208		120		57.7	%
Average sales price	$	606.2	$	503.4	$	102.8	20.4	%
West Region Totals
Dollars	$	963,790	$	723,306	$	240,484	33.2	%
Homes in backlog	1,866		1,645		221		13.4	%
Average sales price	$	516.5	$	439.7	$	76.8	17.5	%
Central Region - Texas
Central Region Totals
Dollars	$	772,871	$	572,242	$	200,629	35.1	%
Homes in backlog	1,878		1,630		248		15.2	%
Average sales price	$	411.5	$	351.1	$	60.4	17.2	%
East Region
Florida
Dollars	$	352,584	$	214,790	$	137,794	64.2	%
Homes in backlog	868		550		318		57.8	%
Average sales price	$	406.2	$	390.5	$	15.7	4.0	%
Georgia
Dollars	$	91,781	$	57,882	$	33,899	58.6	%
Homes in backlog	203		156		47		30.1	%
Average sales price	$	452.1	$	371.0	$	81.1	21.9	%
North Carolina
Dollars	$	225,854	$	163,346	$	62,508	38.3	%
Homes in backlog	565		454		111		24.4	%
Average sales price	$	399.7	$	359.8	$	39.9	11.1	%
South Carolina
Dollars	$	44,673	$	41,211	$	3,462	8.4	%
Homes in backlog	133		120		13		10.8	%
Average sales price	$	335.9	$	343.4	$	(7.5)	(2.2)	%
Tennessee
Dollars	$	64,611	$	39,770	$	24,841	62.5	%
Homes in backlog	166		117		49		41.9	%
Average sales price	$	389.2	$	339.9	$	49.3	14.5	%
East Region Totals
Dollars	$	779,503	$	516,999	$	262,504	50.8	%
Homes in backlog	1,935		1,397		538		38.5	%
Average sales price	$	402.8	$	370.1	$	32.7	8.8	%

(1)Our backlog represents net sales that have not closed.

Fiscal 2021 Compared to Fiscal 2020

Companywide. In 2021, home closing revenue grew by 14.1% to $5.1 billion on 12,801 units compared to $4.5 billion on 11,834 units in 2020. The improved revenue reflects an 8.2% increase in volume and a 5.5% increase in ASP on closings resulting from pricing power on continued elevated demand in the homebuilding market due to the macroeconomic events discussed in "Industry Conditions." Order value increased 12.0% to $5.8 billion from $5.2 billion, due almost entirely to pricing power, as ASP on orders increased 11.3% year-over-year, while both order volume and orders pace were comparable with prior year as we metered orders in 2021 to align with our current production capacity. Order volume was 13,808 and 13,724 for the years ended December 31, 2021 and 2020, respectively, as a 1.9% higher number of average active communities was offset by a 1.3% decline in orders pace of 5.1 per month in 2021 compared to 5.2 in 2020. We ended the year with 5,679 homes in backlog valued at $2.5 billion, 21.6% and 38.8% higher backlog units and value, respectively, compared to 2020. ASP on homes in backlog grew by 14.2% to $443,100 at December 31 2021, compared to $388,000 in 2020, reflective of the persistent pricing power experienced throughout the year.

West. The West Region generated $1.9 billion in home closing revenue for the year ended December 31, 2021, a 6.6% increase over the $1.8 billion in the prior year, closing 4,055 homes in 2021, up 1.7% from the 3,988 homes closed in 2020. Order value for the West Region held steady at $2.2 billion in 2021 as compared to $2.1 billion in 2020, as a 12.5% increase in ASP on orders offset the 10.6% decrease in order volume of 4,276 homes during the year ended December 31, 2021 from 4,781 home orders in 2020. The decrease in order volume is primarily the result of a 10.1% decline in year-over-year orders pace per community to 5.1 per month in 2021 compared to 5.7 in 2020, due to the metering of orders as previously discussed, and a relatively consistent average active community count year-over-year. In the West Region, approximately 80% of our communities target first-time buyers at December 31, 2021. The West Region ended 2021 with backlog of 1,866 homes valued at $963.8 million versus 1,645 homes at $723.3 million in 2020, 13.4% and 33.2% increases over the prior year, respectively.

Central. The Central Region, made up of our Texas markets, closed 4,165 homes for the year ended December 31, 2021 compared to 3,894 in 2020. The 7.0% improvement in closing units combined with 10.1% higher ASP generated a 17.8% increase in home closing revenue to $1.5 billion, up from $1.3 billion in 2020. The Central Region also reported a 15.5% improvement in order value year-over-year due to a 17.2% increase in ASP on orders that was partially offset by 1.4% lower order volume. The decline in order volume was driven entirely by a 2.2% decline in average active communities. The Central Region ended 2021 with 4,413 orders valued at $1.7 billion compared to 4,476 orders at $1.5 billion in the prior year. The Region ended 2021 with backlog of 1,878 units valued at $772.9 million compared to 1,630 units valued at $572.2 million at December 31, 2020, reflecting a 17.2% improvement in ASP.

East. The East Region generated the strongest year-over-year improvements in both volume and value of closings and orders. The East Region posted increases of 20.4% and 15.9% in home closing revenue and volume, respectively, to $1.7 billion on 4,581 homes in 2021 from $1.4 billion on 3,952 homes in 2021. Home closing revenue benefited from the increase in volume and a 3.9% higher ASP on closings. The East Region was the only region to see improvement in order volume, with order volume and value improving by 14.6% and 24.4%, respectively, in 2021 to 5,119 units valued at $1.9 billion compared to 4,467 units valued at $1.6 billion in the prior year. The year-over-year improvement in orders is due to both a 7.0% higher orders pace and a 7.1% increase in average active communities, with the East as our only region to have an increase in average active communities. The East Region also delivered the greatest improvement in backlog units and value, ending 2021 with 1,935 units in backlog valued at $779.5 million, 38.5% and 50.8% increases, respectively, compared to the prior year.

Land Closing Revenue and Gross Profit

From time to time, we may sell certain land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in the specific geography. As a result of such sales, we recognized land closing revenue of $25.2 million and $17.7 million for the years ending December 31, 2021 and 2020, respectively. We recognized losses of $1.1 million and $20.8 million in 2021 and 2020, respectively. The losses recognized in both years were due to the upcoming dispositions of certain assets that no longer fit our strategic focus on entry-level and first move-up homes and includes associated impairment charges of $2.0 million and $21.8 million, in 2021 and 2020, respectively.

Other Operating Information (dollars in thousands)


	Years ended December 31,
	2021				2020
	Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue
Home Closing Gross Profit (1)
Total	$	1,418,377	27.8	%	$	980,408	22.0	%

West	$	519,372	27.1	%	$	380,675	21.2	%

Central	$	448,284	29.9	%	$	304,538	23.9	%

East	$	450,721	26.8	%	$	295,195	21.2	%

(1)Home closing gross profit represents home closing revenue less cost of home closings, including impairments, if any. Cost of home closings includes land and lot development costs, direct home construction costs, an allocation of common community costs (such as architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Fiscal 2021 Compared to Fiscal 2020

Companywide. Home closing gross margin improved to 27.8% for the year ended December 31, 2021 compared to 22.0% in the prior year. Home closing gross profit increased by $438.0 million to $1.4 billion in 2021 versus $980.4 million in 2020, driven by the higher home closing revenue and 580 basis point increase in home closing gross margin. The improvement in home closing gross margin is primarily due to pricing power from robust buyer demand combined with leverage of fixed costs on greater home closing revenue, which have more than offset the rising lumber prices and increases in other commodity costs.

West. Our West Region home closing gross margin improved 590 basis points to 27.1% in 2021 versus 21.2% in 2020. Pricing power and leverage of fixed costs on greater revenues led to improved margins year-over-year.

Central. The Central Region produced the highest home closing gross margin and the greatest improvement of 600 basis points for the year ended December 31, 2021 at 29.9%, up from 23.9% in the prior year. The improvement in gross margin was due to pricing power resulting in the highest ASP increase in the Company of 10.1% combined with leverage of fixed costs.

East. The East Region experienced a 560 basis point improvement in 2021 of 26.8% versus 21.2% for 2020. The margin improvement in the Region is the result of greater leverage of fixed costs on 20.4% higher closing revenue year-over-year as well as a 3.9% increase in ASP.


	Years Ended December 31,
	($ in thousands)
	2021		2020
Financial services profit	$	18,034	$	16,388

Financial services profit. Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title and Meritage Insurance, as well as our portion of earnings from a mortgage joint venture. The increase of $1.6 million, or 10.0%, is in line with the increase in home closing volume year-over-year.



	Years Ended December 31,
	($ in thousands)
	2021			2020
Commissions and Other Sales Costs	$	(285,403)		$	(287,901)
Percent of home closing revenue	5.6		%	6.4		%
General and Administrative Expenses	$	(181,449)		$	(159,020)
Percent of home closing revenue	3.6		%	3.6		%
Interest Expense	$	(318)		$	(2,177)
Other Income, Net	$	4,864		$	6,662
Loss on Early Extinguishment of Debt	$	(18,188)		$	—
Provision for Income Taxes	$	(217,390)		$	(110,091)

Fiscal 2021 Compared to Fiscal 2020

Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs decreased $2.5 million and decreased as a percentage of home closing revenue by 80 basis points in 2021 over 2020. The decrease as a percentage of home closing revenue is due to lower broker commissions in 2021 and our utilization of digital sales solutions. Additionally, the latter half of 2020 was negatively impacted by increased commission incentives that were temporarily offered during the early stages of the pandemic. The decrease in commissions and other sales costs in dollars was primarily the result of savings in marketing and advertising spend as we leveraged more digital platforms and efficiencies integrated into our sales and marketing structure.

General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the year ended December 31, 2021, general and administrative expenses were $181.4 million or 3.6% of home closing revenue as compared to $159.0 million or 3.6% of home closing revenue for the 2020 period. The $22.4 million increase is due primarily to increased payroll and performance based bonus compensation expenses on higher employee headcount and one-time items totaling approximately $5.0 million included retirement payments to our former General Counsel who retired in December 2021 and a change in the Company's retirement vesting eligibility for equity awards. As a percentage of home closing revenue, general and administrative expenses were consistent at 3.6% for both periods, as we realized the efforts of our cost control objectives. We have also continued our restrictions on certain corporate expenditures, particularly as they relate to precautions taken to address ongoing COVID-19 concerns. As COVID-19 restrictions ease, we expect these costs to gradually return as more employees return to the office and resume travel.

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes and our Credit Facility. Our non-capitalizable interest expense decreased to $0.3 million in 2021 compared to $2.2 million for the 2020 period due to lower interest incurred in 2021 resulting from the early redemption of the $300.0 million 7.00% Senior Notes due 2022 ("2022 Notes") during the second quarter of 2021 and no outstanding borrowings on our Credit Facility during 2021. In 2020 we incurred interest charges from our Credit Facility which had $500.0 million outstanding for several months during the first half of 2020.

Other Income, Net. Other income, net primarily consists of (i) sub lease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements, and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. Other income, net decreased by $1.8 million in 2021 compared to 2020 due to a one-time benefit payment in 2020 of approximately $1.5 million for company-owned life insurance proceeds.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of $18.2 million for the year ended December 31, 2021 is related to the early redemption of our 2022 Notes. There were no similar charges for the year ended December 31, 2020. See Note 7 in the accompanying consolidated financial statements for more information related to the early redemption.

Income Taxes. The effective tax rate was 22.8% and 20.6% for 2021 and 2020, respectively. The effective rate in both years reflects the availability of the Internal Revenue Code §45L energy efficient homes credits (the "energy tax credit") from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the "2019 Act") that was signed into law on December 20, 2019 and has been extended through 2021. The higher rate in 2021 reflects increased profit in states with higher tax rates and a reduced benefit of the energy tax credit applied to greater earnings before income taxes.

Liquidity and Capital Resources

We have historically generated cash and funded our operations primarily from cash flows from operating activities. Additional sources of funds may include additional debt or equity financing and borrowing capacity under our unsecured revolving credit facility ("Credit Facility"). We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land and inventory acquisition and development. Our principal uses of cash include acquisition and development of new and previously controlled land and lot positions, home construction, operating expenses, and the payment of interest and routine liabilities. From time to time, we opportunistically repurchase our senior notes and common stock.

Cash flows for each of our communities depend on their stage of the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and are not recognized in our income statement until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred.

Short-term Liquidity and Capital Resources

Over the course of the next twelve months, we expect that our primary demand for funds will be for the construction of homes, as well as acquisition and development of both new and existing lots, operating expenses, including general and administrative expenses, interest payments on current and future debt financings and opportunistic common stock repurchases. We expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents on hand and our net cash flows provided by operations.

Between our cash and cash equivalents on hand combined with the availability of funds in our Credit Facility, we believe that we currently have sufficient liquidity. Nevertheless, we may seek additional capital to strengthen our liquidity position, enable us to acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to grow our lot supply and active community count, payments of the principal amounts and interest on our senior notes as they become due or mature and common stock repurchases. We expect our existing and generated cash will be adequate to fund our ongoing operating activities as well as providing capital for investment in future land purchases and related development activities. To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional public offerings of our securities, refinance or secure new debt or dispose of certain assets to fund our operating activities. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact both short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on our consolidated balance sheets as of December 31, 2021, while others are considered future commitments. Our contractual obligations primarily consist of principal and interest payments on our senior notes, loans payable and other borrowings, including our Credit Agreement, letters of credit and surety bonds and operating leases. We have no debt maturities until 2025. We also have certain short-term lease commitments, commitments to fund our existing unconsolidated joint

ventures and other purchase obligations in the normal course of business. Future commitments include land acquisition spend under purchase and option agreements. We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and borrowing capacity under our Credit Facility. Our maximum exposure to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized pre-acquisition costs.

For information about our lease obligations, loans payable and other borrowings and senior notes, reference is made to Notes 4, 6, and 7 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein.

Reference is made to Notes 1, 3, 5, and 16 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated, if any.

We do not engage in commodity trading or other similar activities. We had no derivative financial instruments at December 31, 2021 or 2020.

Operating Cash Flow Activities

During the year ended December 31, 2021, net cash used in operations totaled $152.1 million versus net cash provided by operations of $530.4 million during the year ended December 31, 2020. Generally, our operating cash flows fluctuate primarily based on changes in our net earnings, real estate inventory and, to a lesser extent, timing of payments of accounts payable and accrued liabilities.

Operating cash flow results in 2021 primarily reflect $737.4 million in net earnings, which were offset by a $948.1 million increase in real estate due to increased spending on homes under construction as well as acquisition of new land positions. Operating cash flow results in 2020 reflect the $423.5 million in net earnings and an $88.9 million increase in accounts payable and accrued liabilities due to the timing of cash payments and an increase in income taxes payable, partially offset by a $40.1 million increase in real estate due to increased spending on homes under construction as well as acquisition of new land positions.

Investing Cash Flow Activities

During the year ended December 31, 2021, net cash used in investing activities totaled $26.8 million as compared to $18.2 million for the same period in 2020. Cash used in investing activities in both 2021 and 2020 is mainly attributable to the purchases of property, plant and equipment of $25.7 million and $19.9 million, respectively.

Financing Cash Flow Activities

During the year ended December 31, 2021, net cash provided by financing activities totaled $51.6 million as compared to net cash used in financing activities of $86.0 million for the same period in 2020. The net cash provided by financing activities in 2021 primarily reflects the net proceeds of $450.0 million from the issuance of our 3.875% Senior Notes due 2029, offset by the early redemption of our 7.00% Senior Notes due 2022 of $300.0 million principal and associated early tender fees of $17.7 million, along with share repurchases of $61.0 million. The net cash used in financing activities in 2020 consists of $69.6 million in share repurchases and $16.4 million in repayments of loans payable and other borrowings.

On February 13, 2019, the Board of Directors authorized a new stock repurchase program, authorizing the expenditure of up to $100.0 million to repurchase shares of our common stock. On November 13, 2020, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program. On August 12, 2021, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program. We acquired 639,346 and 1,100,000 shares of our common stock at an aggregate purchase price of $61.0 million and $69.6 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was approximately $153.4 million available under this program to repurchase shares.

The Company entered into the unsecured revolving Credit Facility in 2014 that has been amended from time to time. In December 2021, the Credit Facility was amended, extending the maturity date from December 2025 to December 2026 and replacing LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate ("SOFR"). The Credit Facility's aggregate commitment is $780.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $880.0 million, subject to certain conditions, including the availability of additional bank commitments.

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands):


	At December 31, 2021			At December 31, 2020
Senior notes, net, loans payable and other borrowings	$	1,160,038		$	1,020,085
Stockholders’ equity	3,044,389			2,347,868
Total capital	$	4,204,427		$	3,367,953
Debt-to-capital (1)	27.6		%	30.3		%
Senior notes, net, loans payable and other borrowings	$	1,160,038		$	1,020,085
Less: cash and cash equivalents	(618,335)			(745,621)
Net debt	$	541,703		$	274,464
Stockholders’ equity	3,044,389			2,347,868
Total net capital	$	3,586,092		$	2,622,332
Net debt-to-capital (2)	15.1		%	10.5		%

(1)Debt-to-capital is computed as senior notes, net and loans payable and other borrowings divided by the aggregate of total senior notes, net and loans payable and other borrowings and stockholders' equity.

(2)Net debt-to-capital is computed as net debt divided by the aggregate of net debt and stockholders' equity. Net debt is total senior notes, net and loans payable and other borrowings, less cash and cash equivalents. The most directly comparable GAAP financial measure is the ratio of debt to total capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing.

Credit Facility Covenants

Borrowings under the Credit Facility are unsecured but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $1.9 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than our consolidated interest incurred during the trailing 12 months. We were in compliance with all Credit Facility covenants as of December 31, 2021. Our actual financial covenant calculations as of December 31, 2021 are reflected in the table below.


Financial Covenant (dollars in thousands):	Covenant Requirement	Actual
Minimum Tangible Net Worth	> $2,068,292	$3,003,878
Leverage Ratio	< 60%	13.1%
Interest Coverage Ratio (1)	> 1.50	17.30
Minimum Liquidity (1)	> $62,836	$1,335,939
Investments other than defined permitted investments	< $901,163	$5,764

(1)We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.

Recent Accounting Standards

See Note 1 to our consolidated financial statements included in this report for discussion of recently-issued accounting standards.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our fixed rate debt is made up primarily of $1.2 billion of our senior notes. Except in limited circumstances, we do not have an obligation to prepay our fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed rate borrowings until we would be required to repay such debt. Our Credit Facility is subject to interest rate changes. We had no intraperiod borrowings under the Credit Facility during the year ended December 31, 2021, and had $500.0 million of intraperiod borrowings for during the year ended December 31, 2020, with none outstanding as of either December 31, 2021 or 2020. There were no interest charges resulting from intraperiod borrowings during the year ended December 31, 2021. Interest charges resulting from the intraperiod borrowings totaled $0.2 million for the year ended December 31, 2020.

The following table presents our long-term debt obligations, principal cash flows by maturity, weighted average interest rates and estimated fair market value for the year ended December 31, 2021 (in thousands):


										Fair Value at December 31,
	2022		2023		2024		2025				2026		Thereafter			Total			2021 (a)

Senior Notes
Fixed rate	$	—	$	—	$	—	$	400.0			$	—	$	750.0		$	1,150.0		$	1,248.7
Weighted average interest rate	n/a		n/a		n/a		6.000		%		n/a		4.375		%	4.940		%	n/a